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

Mark Reckless Excerpts

Monday 3rd September 2012 Commons Chamber

[Mr Hague]

Without the Act that we passed, the change that we are debating would not have required an Act of Parliament. Therefore anything similar achieved under a simplified revision procedure would also fall into that category.

[Mark Reckless (Rochester and Strood) (Con)]

Surely my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) was saying that throughout the history of the European Union every treaty amendment has required an Act of this House, so what we are doing today is no different from what has been done in the past.

[Mr Hague]

Yes, but in the past we did not always have the simplified revision procedure and the provisions of the Lisbon treaty that most Government Members—or rather most of us in the Conservative part of the coalition—opposed when the legislation was passing through this House. Even without this change in scrutiny, there would now be far greater scope for treaty changes without the passage of an Act of Parliament.

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[Mr Hague]

That is what has been agreed. I am going to examine, in what my hon. Friend or other hon. Members might find painstaking detail—[Interruption.] Actually, I can see that some of my hon. Friends will not find it painstaking. I will go through this in detail to give full, frank and maximum assurance to my hon. Friend and others.

Not only does the new mechanism, the ESM, which is limited to eurozone countries, supersede the EFSM; crucially, the decision that the Bill approves and which is being ratified by all other EU countries reflects in its recitals, or preamble, an agreement that article 122

“will no longer be needed for such purposes”,

The Heads of State or Government have therefore agreed that it should not be used for such purposes. Therefore, when this decision is ratified, our liability for future euro area financial assistance programmes under the EU budget will be removed. That is a great gain for British taxpayers and, because it fetters the use of article 122, a shift of a power from the European Union to the United Kingdom.

[Mark Reckless]

Will the Foreign Secretary give way?

[Mr Hague]

No, I am going to explain quite a bit of this, and then I will give way to my hon. Friend again.

The House will want to know how our contingent liability under the EFSM is being brought to an end and—this was the question asked by my hon. Friend the Member for Bury North (Mr Nuttall)—how sure a protection we have against any future use. First, when eurozone member states agreed to bring forward the introduction of the ESM at the ECOFIN meeting on 23 January this year, the Chancellor won agreement from his fellow Finance Ministers that the EFSM would not make any new commitment as soon as the ESM comes into force, which we expect to happen this autumn when the German ratification process is complete. That is an important political agreement. Secondly, there is the decision that we are approving in the Bill and which all our European partners have agreed to ratify by the end of this year. The fourth recital to the decision reflects the agreement reached in the European Council to close off the future use of the EFSM or any such mechanism under paragraph (2) of article 122. As I have said, we expect every country to have ratified the decision by the end of this year.

Those present who are cynical about the ways of the European Union—and there are such people here; in many respects I share a lot of their cynicism—may ask what would happen if, notwithstanding the decision, the Commission made a proposal to reactivate the EFSM or something like it. First, that would be a breach of a political agreement unanimously reached in the European Council, recorded in the Council conclusions, and reflected in the preamble to a decision unanimously agreed at the European Council and soon, we expect, to be ratified unanimously by all EU countries under their respective constitutional requirements. If, despite all that—this is an extreme hypothesis—the Commission made such a proposal and somehow received a qualified majority, the British Government would of course challenge any such measure before the European Court of Justice, citing the agreement of all EU member states in the European Council and the fourth recital to the decision in support of the argument that any such measure would be in breach of the clear intention of all EU member states and that article 122 would no longer be needed and should not be used for this purpose. Those would be very strong arguments indeed. That is the protection that we have secured against any future obligation to participate in bail-outs, and it is a good one.

[Mark Reckless]

Is there not a fundamental inconsistency in the Foreign Secretary’s position? On the one hand, he says that ratifying the European Council decision of 25 March 2011, which amends article 136, will affect only member states in the eurozone and not the UK, and that he therefore does not need a referendum. He then goes on to say, “Ah, look at recital (4) within the decision. That will mean that the mechanism cannot be used to impose costs on the United Kingdom in future.” That is surely a fundamental inconsistency.

[Mr Hague]

No, it is not. The decision relates to a treaty being created for the eurozone countries. In conjunction with that and at the same time, as is reflected in the fourth recital, the Prime Minister secured agreement at the December 2010 European Council that article 122 would not be used. That is absolutely clear. If my hon. Friend wants to argue that we should have a referendum on our not being liable for eurozone bail-outs any more, he can do so, but I will not agree. That is not the kind of thing that we had in mind when we passed the European Union Act 2011; nor would it do any good to the good name of referendums.

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[Mr Hague]

I can go over that again. It is that article 122 will no longer be used for eurozone bail-outs. It may be my hon. Friend who faces a Catch-22 here, because he just cannot bear the idea that a Bill that says “European something” on it might be good for the country. This Bill is good for the country. Even those of us, like him and me, who are very sceptical about many aspects of the European Union have to admit that securing an agreement that means that we are no longer liable for eurozone bail-outs and that does not harm the country in any other way is, in the words of our noble Friend Lord Flight in the other place, a “no-brainer” to support. That is why I hope that the House will support the Bill.

[Mark Reckless]

Will the Foreign Secretary give way?

[Mr Hague]

No, I will not give way any further. [Interruption.] The right hon. Member for Rotherham (Mr MacShane) will never see me go native on European subjects.

The ESM is being set up under an intergovernmental treaty that was signed on 2 February by the eurozone member states. That treaty is now being ratified by those 17 member states. It will come into force as soon as euro area member states representing 90% of the capital commitments to the fund have ratified the intergovernmental treaty.

The treaty amendment that Parliament is being asked to approve in the Bill does not establish the ESM. Our clear view—this is part of the answer to my hon. Friend the Member for Harwich and North Essex (Mr Jenkin)—is that the treaty amendment is not legally required to set up the ESM. Eurozone member states, in particular Germany, want the legal certainty that the amendment provides, partly because of article 125, which is the no bail-out provision that he talked about. The UK, of course, will not ratify the ESM treaty because it has not signed up to the intergovernmental agreement, is not part of the eurozone and is not going to be part of the eurozone. The intensification of the crisis led eurozone member states to agree to bring forward the introduction of the ESM to this year. Their position has not changed the timing of the ratification.

Members may also be aware that a legal challenge to the validity of the decision amending article 136 is currently being considered by the European Court of Justice. The Irish Supreme Court is seeking a ruling on whether it is valid, whether the ESM treaty is compatible with EU law, and whether eurozone member states can establish the ESM before the article 136 decision enters into force.

We are wholly satisfied that the decision is valid from a legal perspective, but it is absolutely right that the Irish Supreme Court seeks the ruling of the European Court of Justice, particularly because Ireland is a member of the eurozone and a signatory to the ESM treaty. We do not expect the ECJ to find against the decision in any way, but should it find the decision invalid or the ESM incompatible with EU law, there would need to be a new ratification process. A failure to approve the decision would, naturally, have an unfortunate effect on our trading partners in the eurozone by undermining certainty about the legal validity of their firewall, and it would leave unratified the decision, the importance of whose recitals to us I have explained. That would be unfortunate from our point of view.

[Mark Reckless]

Will the Foreign Secretary give way?

[Mr Hague]

No, I have given way several times to my hon. Friend.

The case for the Bill is straightforward. It means the end of any new contingent liability under the EFSM, and the end of any such future bail-out contingent liability.

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[Mr Alexander]

I would not wish to intrude on the constitutional differences between the Chancellor of Germany and the governor of the Bundesbank. President Draghi bears a heavy burden of responsibility on Thursday to add detail to the terms of the guarantees that he was judged to have offered on the basis of his rhetoric at the previous press conference in the summer.

There is clearly a divide between those who, despite the economic facts, remain wedded throughout Europe to an austerity-only approach and those who recognise the need for a growth-led recovery alongside genuine efforts at medium-term deficit reduction. It is regrettable that our Government appear to be firmly on the wrong side of the divide. However, I welcome the fact that, at the last EU summit, a useful but modest growth package was agreed, although I regret that the Prime Minister of the United Kingdom remained bound to the last to the old Merkozy-style approach.

As part of the new focus on growth across Europe, we support a significant increase in the capital of the European Investment Bank and the concept of infrastructure bonds to finance major capital investment projects. The European Union must also learn to use existing resources better without spending more. A genuine plan for growth must start with reform of the EU’s 2014-20 budget, which, at more than €1 trillion, has the potential to make a real impact on the European economy’s recovery by spending less on agriculture, more on infrastructure, small business growth and research and development, and better using the money currently spent through existing EU structural funds.

Alongside those targeted measures to stimulate growth, the Government should call for the completion of the single market and the digital and energy markets. Completely removing existing obstacles could translate into a 7% increase in incomes per head in the UK, according to the Department for Business, Innovation and Skills. Further integration could therefore provide a genuine and much-needed boost to growth.

[Mark Reckless]

The shadow Foreign Secretary is giving us a tour of the European horizon, but may I pull him back to the Council’s decision, which we are asked to ratify tonight? Does he consider that decision to include the recitals?

[Mr Alexander]

As a former Minister for Europe—and the current Minister for Europe is sitting on the Front Bench opposite—I can say that there is a Council legal service, which can advise about the standing and authority of the recitals. If I recollect correctly, recitals have been judged in previous legal cases to have persuasive effect, and would certainly inform any subsequent legal judgment about Ministers’ intentions in the Council meeting at the time. I therefore think that it was appropriate for the Foreign Secretary to rehearse in some detail the terms of the recital to inform the House about the basis on which the Council reached the decision at the meeting. Perhaps I would add to the Foreign Secretary’s earlier comments that the other great strength of the proposal is the explicit nature of the understanding that the problem is for the eurozone and must be addressed by eurozone members. I have been candid in recognising that, in the teeth of the crisis, in the final days of the Labour Government, decisions were made that reflected the urgency of the moment. One reason why it is in Britain’s interest to support the amendment to the treaty is the facilitation of the eurozone countries’ assumption of the responsibility that we have long argued that they should accept for the currency’s continuing structural problems.

Let me turn to an issue that the Foreign Secretary raised only briefly, in passing. I anticipate that other colleagues will also raise it. It is fair to recognise that the eurozone crisis is now having an impact on the British economy. However, it is wholly wrong to claim, as the Government are trying to do in several different forums, that the current double-dip recession in the UK is the result of the ongoing eurozone crisis. That is an excuse, not an explanation.

First, for most of early 2012 and 2011, exports, including to the eurozone, were keeping the UK out of recession. Secondly, the UK recovery stopped in late 2010, well before the eurozone crisis had fully taken hold. Thirdly, of all the G20 countries, only Italy is in recession as well as the UK, and although the eurozone as a whole is now contracting, it is has not seen three successive quarters of negative growth as, alas, we have witnessed in the UK under the current Government. Although the crisis in the eurozone poses serious risks to the UK economy, the Government’s failed economic strategy has rendered our economy more vulnerable and more exposed to these risks than we needed to be.

The establishment of the ESM is therefore a necessary, if partial, response to the problems afflicting the eurozone. The risks still confronting the eurozone are real and immediate. Ratifying the treaty amendment that allows for the ESM’s establishment must not be seen as an excuse for inaction on the other vital areas where the eurozone is still required to act, or, indeed, on the change of course that is now needed here in the UK.

Amendment of the treaty is not only in the eurozone’s interest, but in that of the UK. For that reason, we support the Bill.

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[Mr Cash]

As a Euro-realist, I am glad we will no longer be liable under the European financial stabilisation mechanism, but that does not exonerate the arrangements that were made by the then Labour Chancellor of the Exchequer, and by the current Chancellor, not to mention the Business, Innovation and Skills Secretary. In May 2010, as the former Chancellor makes clear in his book, they were all involved in endorsing the decision on the transitional arrangements between the outgoing Government and the current one. The illegality is shared by all members of the previous and current Governments.

[Mark Reckless]

My hon. Friend ascribes responsibility to a number of politicians, but what about the role of Sir Jon Cunliffe, our permanent representative in Brussels at that time? He had a key role in the matter, and since that time has been promoted.

[Mr Cash]

My hon. Friend and others have pursued that relentlessly and still have no real answers. The truth of the matter is that a number of things were done at or around that time that many people now rather regret—let us put it that way. The fact that the EFSM is now described as “not needed” is disingenuous because people know perfectly well that it was illegal. That is not just my opinion—I make this comment to the hon. Member for Cheltenham (Martin Horwood)—but the one reached by members of the European Scrutiny Committee as a whole in the light of what we heard.

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[Mr Cash]

I cannot possibly comment, as they say, on that particular point because I am not aware of all the circumstances. Although mistakes were made, the point regarding the ESM is far more important. I accept that the EFSM is now in the past, but it was an unfortunate incident and all parties involved were culpable of allowing it to be endorsed as a proposal—it remained effective for far too long, with obligations on the United Kingdom and its taxpayers.

[Mark Reckless]

The individual concerned was a senior official in the Treasury at the time—I was referring to his current position. The Europe Minister and the shadow Foreign Secretary have supported what their senior officials in a number of positions say, but if the House had had the chance to scrutinise the individual concerned, and if either the European Scrutiny Committee or the Foreign Affairs Committee had been able to determine his appointment, we might be in a different position.

[Mr Cash]

We have probably gone through that in as much detail as is required or necessary on this occasion. My point is that it is not the case, as the Foreign Secretary and the papers to which he is religiously sticking state, that article 122 arrangements for the EFSM are no longer needed. That is not only disingenuous, but verging on something much worse. It is not just a question of them not being needed, but I will leave it at that for the time being.

The real question is on the problems that will emerge in practice from the continuous stream of payments and bailouts, putting heads in the sand and the complete abnegation of reality. It is clear—the most recent edition of The Economist indicates as much—that the euro will turn into a soft currency with high inflation. The general secretary of the CSU, the Bavarian party that makes up part of the coalition in Germany, accuses the European Central Bank—this is a far worse accusation than any regarding the EFSM—of becoming

“the currency forger of Europe”.

There are profound reasons for that accusation, which is made by one of the most senior members of the German coalition. I could spend a fair amount of time going through technical and legal points on the European Act 2011, the exemption conditions and the opinion of the Foreign Secretary, but the issue is much more serious than treading through the maze of legalities created by the Act. This is about the substance of the manner in which the European Union functions and fails.

I shall come to the attitudes of German voters later, but it is important that people throughout Europe recall, as Germans do, what happened in the 1930s and subsequently. The economy’s implosion and high inflation—evidence that the economy was completely out of kilter with reality—ultimately led to disaster and the emergence of Hitler from the Weimar republic. Those things are brought to mind by the CSU general secretary’s accusation that the ECB is becoming

“the currency forger of Europe”

to provide the scale of bailouts contemplated under the Bill and the treaty. Massively high inflation is caused by printing money when a country does not have it on the basis of how it runs its economy. No wonder only 24% of more than 1,000 German voters polled had confidence in the short-termism that such measures represent.

Angela Merkel is certainly bidding for a new European treaty—it has not been received with enthusiasm, but the treaty issue has not gone away. In December, there is a fair chance that she will come back for a new treaty that will effectively create yet another step towards political union. We know perfectly well—it is no longer taboo, although I have been saying it for the best part of 25 years and it is now reality—that Germany is now moving further and further towards political union, which it will largely dominate, although more and more Germans are against the bail-outs, even to the point at which, as The Economist suggested last week, Mr Weidmann is now seen increasingly as Angela Merkel’s Thomas à Becket, having been one of her most loyal supporters. This is a very serious matter, but the shadow Foreign Secretary simply does not see it. I asked him whether he agrees with Angela Merkel or with Mr Weidmann because that is what is at the heart of this Bill.

The worst of it is that in fact it is not going to work anyway. Mrs Angela Merkel knows that Mr Weidmann is right on economics, but she has her own agenda of political union as the centrepiece for the destiny of Germany, as she has repeatedly argued. It is not just Germany. Spain is rapidly following Greece over the euro cliff, with Italy not far behind, not to mention the continuing problems in Portugal, Ireland, Cyprus and a stack of other countries. It is even now becoming a problem in respect of the individual provinces in Spain—Catalonia, Valencia, Murcia and other regions are lining up while Spain dives into a double-dip recession. There simply is not the money to pay for the catastrophe that the European economic system has created.

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[George Eustice]

I think that there is a big difference between the fiscal compact that we vetoed last December and this particular one. Again, this comes back to the point about what is proportionate. By vetoing that fiscal compact, Britain was sending a clear signal that we were not going to be part of a wider decision at an EU level for those types of fiscal integration, because we were not affected. That approach was absolutely right on a number of levels. First, it showed that Britain was serious and that, on these issues, when we said we were going to do something, we meant it and we were ready to use a veto. That will help us when it comes to budget negotiations.

Secondly, by vetoing that particular treaty at an EU level, the Government managed to limit its scope, because it was, thus, necessarily just about the eurozone members and it cannot affect the UK. Had we signed up to that particular treaty, we would have faced all sorts of threats and demands, and people trying to put other agendas on the table. We would have had months and months of wrestling over things we did not want, before we would probably finally have had to veto it in any case, so I think that we did the right thing. However, I am just not convinced that such an approach is right in this instance, for the reasons I have set out. As I say, I think it would be disproportionate, as the ESM is not going to affect the UK; there is nothing that will expose us to future liabilities. Would it be right for us to stand in the way of countries that think that it is the right thing to do? There is a question of whether it is the right thing, but would it be right for us to stand in their way?

[Mark Reckless]

My hon. Friend refers to our having vetoed the fiscal compact, but is it not going ahead? Are we not acquiescing in the use of the European institutions to enforce it, just as proposed? How does that increase our credibility in budget negotiations?

[George Eustice]

I would hope that my hon. Friend agrees that it was right to use the veto. We need a bit of a culture change in the Foreign Office, as has been alluded to. Historically, there has been too much of a sense that we need to have a seat at the table at all costs. That has been a mistake, it has been the wrong approach and using the veto in that instance was right. I return to what I said about a veto not being proportionate in this case. As I said, my conclusion is probably and, given the subject, extraordinarily, closer to that of the hon. Member for Cheltenham (Martin Horwood)—this is a step forward from the position that we inherited from Labour and we should recognise that.

It is encouraging that the European Union Act 2011 has had an effect for the first time, as the proposal we are dealing with requires an Act of Parliament. My hon. Friend the Member for Stone made some comments about that legislation, but again we need to give credit where credit is due. It is a major step forward, as it puts the UK on a similar footing to countries such as Ireland and Denmark, in that it will trigger a referendum automatically where there are any transfers of power. None of the Maastricht, Nice and Amsterdam treaties would have been able to go through without triggering a referendum. Perhaps Conservative Members are sometimes guilty of underestimating the significance of that, because it is a major step forward and likely to force what my hon. Friend and I want, which is, at some point, a proper renegotiation of Britain’s relationship with Europe and a new settlement. I say that for the simple reason that other countries are pulling in a direction that we will not follow and the British public’s chance for the first time to say, “We will not follow” will force a new settlement and the sorts of negotiations that we want but that have eluded us for far too long.

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[George Eustice]

It may come forward, but there will be better opportunities than this Bill to pick the moment to have that negotiation. This is not the Bill or the issue on which to say to other European countries, “Unless you give us a full-scale renegotiation, we are going to veto the proposal.” It is disproportionate to take that approach in this instance.

So much for the areas on which we disagree. I want to come on to some of the areas on which we are probably in agreement and to echo some of the points made. There is a big question about whether the ESM will be a solution to the crisis, or even part of one, and there is also doubt about whether there is any solution to the crisis gripping the eurozone. Although, as the Foreign Secretary said earlier, the polls in all the countries in the euro consistently show their wanting to stay in the currency, in reality they do not want to take the decisions or accept what the euro inevitably entails. That is where the real problem lies.

Let us consider Germany, for example. It is undoubtedly benefiting at the moment, almost freeloading on the other member states and enjoying a lower exchange rate than it would have if it had its own independent currency. The Germans have kidded themselves into believing that it is all down to German ingenuity and marvellous engineering, and granted they have made some improvements in their labour market and sorted out some of the structural problems in their economy in the past decade, but German industry is undoubtedly benefiting significantly from having a lower exchange rate than it would otherwise have. Meanwhile, countries such as Greece and Spain do not want to do what the euro entails in terms of fiscal discipline and so on. They have spent, borrowed a fortune and shown a complete lack of prudence over the past 10 years. Although such countries say that they want the euro, they do not want what the euro means, which is a real problem.

We should not stop member states trying to save the euro. If they want to save it and want to make that attempt, let us let them do it. I think the most likely scenario, however, is that the euro will be partially broken up and some member states will be allowed to leave it. Although I can understand that the Government would not want to entertain any such talk or to spook the markets by commenting on that idea—I do not expect the Minister will do so when he wraps up the debate—I hope that they are developing some serious contingency plans for handling a break-up of the euro, whether it is orderly or disorderly. Despite all the rhetoric when the euro was introduced about its ending volatility and being all about stability and stable growth, we might find that the conditions for stability and stable growth are best created by floating exchange rates, which can help countries adapt to shocks to their economies and changes in the world economy as well as to transition when things go wrong.

I was in the anti-euro no campaign and worked for it for four years, and I remember that a decade ago, when that debate was going on, many people who are now on the Opposition Benches—the right hon. Member for Rotherham (Mr MacShane), who is no longer in his seat, was one of them—accused us Eurosceptics of putting our heads in the sand and of saying, “Stop the world, I want to get off.” Who are the people who have their heads in the sand today? Who is in denial about the realities, particularly the financial realities, of the world in which we live? The fact is that the euro was an incredibly stupid idea. It was introduced only through a triumph of political belligerence on the part of people such as Chancellor Kohl and François Mitterrand over economic reasoning.

Economists at the time pointed out all of the problems that have come home to roost. They warned that there was a lack of convergence and that that was not just about the cyclical convergence of one’s economy and the levels of growth but, more fundamentally, about structural convergence, the make-up of one’s industries and the differences between economies. They were ignored. They warned that we would get asymmetric shocks to the world economy that would hit some countries worse than others, which would cause tensions in the euro, but they were ignored. They warned that to work properly the euro would require fiscal union and fiscal integration, that it would require very painful long-term adjustments in the absence of an exchange rate that could help people through those adjustments, that countries on the periphery would face prolonged periods of high unemployment and would be forced to cut wages, and that we would have to accept large migrations of people within the European Union from deprived areas to areas that were succeeding under the euro. Those warnings have all come true, but they were all dismissed at the time.

The final thing that everybody pointed out when the euro was debated was that we needed political union to make the euro a success, so that there was clarity in decision making. That has been proved right, too, because despite the warning from those on the pro-euro side that we would not have a seat at the table, all we have at the moment is 17 member states around a table squabbling and unable to reach a clear and coherent decision. That is one reason the euro continues to limp forward.

We need to learn the lessons. Why were all those economists ignored? Why was there so much mindless, blind faith in the idea that the euro was somehow historically inevitable? We still see that from some Members on the pro-euro side. The lesson we must learn is that nothing is inevitable. It is not inevitable that the euro will survive, but nor is it inevitable that it will collapse. The idea of ever closer union is certainly not inevitable any more and it is not inevitable that Britain will always be alone as the only country on the outside talking sense. I think it is quite likely that we will gain allies and that our ideas will start to gain traction.

There was a failure under the previous Labour Government and the truth about new Labour is that an unquestioning pro-Europeanism was almost an article of faith. Anti-Europeanism was blamed for the fact that they were not elected during the 1980s and that association was targeted at people such as my hon. Friend the Member for Luton North (Kelvin Hopkins), with whom I have campaigned on this issue many times. That perspective on Europe was very unquestioning and unprincipled. It was simply a political line to take, with no intellectual rigour, and it led to Tony Blair and the previous Labour Government simply going with the flow on whatever emerged on the European agenda.

This Government have made a very good start. The European Union Act 2011 was much more significant than many people on the Government Benches give it credit for, but we need to develop it and to build on what has been achieved to forge a new doctrine for the future of the European Union. That doctrine must end the dogma of ever closer union and encourage the idea of a multi-tier Europe—a pick-and-choose Europe where countries are able to adopt the policies they want and withdraw from those that they do not like and do not work for them. Too often in the past, we faced the problem of people saying that we would not have enough allies to make a point because there were not enough countries to support us. We need to leave such attitudes behind, because unless we begin the debate now we will never end up in the right place. We should be articulating a proactive vision of an alternative European Union, which does not require deeper integration in one direction.

[Mark Reckless]

My hon. Friend says that unless we begin the debate now, we will not end up in the right place. Has not the debate been going on for more than 20 years? Is not a decision needed to give the British people a vote on whether or not we stay part of it?

[George Eustice]

My hon. Friend knows that my position on a referendum is that there should be one, but that it should be after a renegotiation, not before. I do not agree that we should have an in-or-out referendum on the European Union at this point. I think that we should negotiate new terms with Europe and then put them to the country in a referendum, because that is what the majority of people in this country would support and want. In having a referendum, we must not deny the majority of people in this country the choices they would make.

I agree with my hon. Friend that many of us have been having such a debate, but that position was not adopted by the previous Labour Government, for the reasons I have just explained. Their policy was to go with the flow and they simply took a line that meant accepting all things European as a political doctrine rather than holding any kind of coherent, rigorous view about what the European Union should become. We must get over the weakness and insecurity of the obsession with having a seat around the table and instead start to articulate some clear ideas about what we want the European Union to look like in the future. We should be clear that it is our European Union, too, and that we do not care whether we are in a minority initially in making some of those arguments.

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[Mark Reckless (Rochester and Strood) (Con)]

Today we are agreeing to treaty change, yet we are getting nothing in return. In December, the Prime Minister, at an EU summit, told us that he was vetoing the EU treaty because, while this country supported the eurozone putting in place what it needed to in order to make the eurozone work, to the extent that that is conceivable, this country required something in return for our agreement to that EU treaty change: protection for our key national interest—the City of London. In particular, we wanted all future financial regulation to require unanimity, rather than a majority vote. We have not received that protection for the City of London, yet today we are agreeing to treaty change—without getting what we said we required if we were to support that treaty change.

It is not as if, through that agreement, we got out of using the European financial stabilisation mechanism for Ireland, to which we gave a bilateral loan, and for Portugal, to which we did not, and where the use of the EFSM was simply nodded through. It is the position of many in the House and, as far as I can discern, of Her Majesty’s Government that the use of article 122 and the setting up of the EFSM was not a proper and legal action under the treaties, yet it inflicted on this country a liability of €26.5 billion in respect of Portugal, to be shared through the EU budget, with our share being about 13%. That liability will still, under this arrangement, accrue to this country.

Article 122(2), the “natural disasters” clause, which was used to justify making the EU budget and this country liable for supporting member states that have the euro—a currency that we chose not to join—is still in the treaties. Unlike article 136, it is not amended through use of article 48(6) provisions. It could be used once more. I fear that the chance of it being used in future has been heightened by the way we have dealt with the issue. We agreed to its use at the summit in May 2010. I say “we”, but I cannot go much beyond that, because the Government refuse to release the details of what happened, within the Treasury and beyond, in the period when the coalition Government were being formed and there was a caretaker outgoing Labour Government.

The previous Chancellor has said that he decided that we could not stop use of the provision, and therefore had to agree to it. He states that the current Chancellor raised the radical prospect of us abstaining, but we none the less supported that use, which I believe we hold to be unlawful. My hon. Friend the Member for Camborne and Redruth (George Eustice) referred to shoddy negotiation, but who was conducting that negotiation? In this case, as there was a transitional caretaker Government while a coalition Government was being formed, and a lack of clarity among the political participants on who said and did what when, it is perfectly proper that those very senior civil servants who were conducting the negotiations, preparing the Government line, and advising on whether such action was a lawful or proper use of the treaty, should be held to account, ideally through the Government releasing the relevant documents, which will show who was responsible, and whether the action was agreed by us or the previous Chancellor, or whether it was something that largely happened through officials and their interfacing with officials in other EU countries.

The hon. Member for Luton North (Kelvin Hopkins) is absolutely correct to draw attention to the worrying trend of officials in this country taking a position that is properly that of politicians, and of being infected by practices in some EU countries and in the EU institutions. We must put a stop to that. If officials trespass beyond the role that they have traditionally had in this country, they should not be surprised if they are criticised in this House and elsewhere in political discourse. If the Government were so strongly against what was agreed and how we became part of the EFSM, why did they promote the official who was at least a key cog in conducting those negotiations, and make him our permanent representative in Brussels, and why does the House not have a say in our foreign policy when it comes to what is perhaps the single most important diplomatic appointment, particularly in terms of the ramifications from the EU for our domestic law? Why was that appointment not put before a Committee of this Parliament for it to decide on?

Not only have we promoted the individual to whom I have referred, but we have not challenged the decision to set up the EFSM under article 122. My fear is that while that treaty article remains in force, it could be used again, and we have gained nothing in return for making this treaty change. We heard from the Prime Minister in December at the summit that we supported the eurozone taking the action that it needed to; in return we were not to have the major, full-scale renegotiation to which my hon. Friend the Member for Camborne and Redruth referred—we were simply to have one demand met: the City’s financial regulation should henceforth be decided on by unanimity, not majority. We did not get that, yet we have given way in a craven fashion, and are pushing this treaty change through the House.

Let us look at the decision, which is headed “European Council Decision of 25 March 2011 amending Article 136”. Paragraph (4) says:

“At its meeting of 16 and 17 December 2010, the European Council agreed that, as this mechanism is designed to safeguard the financial stability of the euro area as whole, Article 122(2) of the TFEU will no longer be needed for such purposes. The Heads of State or Government therefore agreed that it should not be used for such purposes.”

Surely what the decision says about the EFSM applies equally to the European financial stability facility, which was set up, albeit on a temporary basis, with an ostensible capacity of €440 million. That was designed for the eurozone and fits all the criteria, yet the EFSM was still set up. I am afraid to say that after that date, we saw use of the EFSM nodded through, by Ministers responsible to the House, with regard to Portugal. In the case of Ireland and the €22.5 billion use of the EFSM, we chose to have a bilateral loan; the arguments there may have been somewhat different. In the case of Portugal, we made no bilateral loan. We do not have the same close economic ties as we do with Ireland, yet we allowed the EFSM to be used for €26.5 billion in the case of Portugal.

We put a stop to the use of the EFSM not because of the European Council decision, but because of the actions of this House, following a debate that I secured from the Backbench Business Committee on a “stop the bail-outs” motion after the Portuguese bail-out was nodded through. Following that, I am pleased to say, the Government found some rigour, stood up for this country, and made it absolutely clear to our European partners that there could be no further use of the EFSM, for example in respect of the further Greek bail-outs. Thankfully, we still have, within that mechanism, €11.5 billion that has not been used, perhaps €2 billion of which could accrue to this country. I thank and praise the Government for their work in that area, at least, and for listening to the House and to the debate that we had. But the problem that the Government have—I raised this with the Foreign Secretary and tried to prise an answer out of the shadow Foreign Secretary on it as well—is what does the decision do in respect of article 122 and the EFSM? It seems that the Government position is, “Oh, we’re getting this great deal in return for our agreeing to the setting up of the permanent stability mechanism. The other side of the coin is that we are released from further obligation under the EFSM and there is an agreement that the EFSM will be used no further.” The Foreign Secretary told us that the decision reflects that agreement in its recitals.

The problem is that if that is the case, under the terms of the European Union Act it is not lawful to approve this in the way that we are seeking to do through legislation. The Foreign Secretary issued his statement under section 5 of the European Union Act 2011—or it may have been the Minister for Europe who did so; the version that I have is unsigned—and it states:

“Section 4(4)(b) of the Act”—

that is, the European Union Act 2011—

“provides that where an Article 48(6) decision relates to the making of a provision that applies only to Member States other than the UK, it is deemed to fall outside section 4.”

That is accepted. The statement continues:

“The Treaty change provision contained in the Article 48(6) Decision does not apply . . . to the UK.”

So what? The legislation does not refer to the treaty change provision contained in the article 48(6) decision. It refers, as the previous sentence correctly states, to section 4(4)(b) of the Act and an article 48(6) decision. If one refers to that article 48(6) decision, it has a heading relating to the stability mechanism. The Foreign Secretary told us that the decision is reflected in its recitals, and I would be interested to hear whether the Government consider that a decision includes its recitals or not.

The burden of the Foreign Secretary’s speech was the great gain for this country and the fact that the decision that we are implementing tonight would somehow get us out of the EU-wide bail-out and prevent the EFSM from being used. If that is the case, it applies to this country.

[Jacob Rees-Mogg]

I am fascinated by my hon. Friend’s argument, which is put with great coherence but I think has one flaw—that is, if something affects the United Kingdom to the extent of zero pounds, it is essentially sophistry to say that it is affecting the United Kingdom. I think that is what my hon. Friend is saying.

[Mark Reckless]

My position and my analysis of the situation is that article 122(2) of the treaty has not been changed. There is nothing to stop another EFSM being set up. The Government’s position, as I understand it, is that the decision that we are ratifying tonight not only sets up the permanent stability mechanism, but releases this country from further potential liability under article 122. To the extent that that proposition is correct, it does affect this country, and what the Foreign Secretary states with reference to section 4 does not apply.

[Jacob Rees-Mogg]

To the extent that it affects this country, surely it is a negative effect—the UK will not in future be liable, rather than any liability or obligation being created for the United Kingdom. I accept that we are arguing about angels on a pin-head, but I do not think that on the understanding of the 2011 Act, that can be deemed as affecting the United Kingdom.

[Mark Reckless]

What the Foreign Secretary has chosen to do in making his statement under section 5 of the EU Act is to rely on section 4(4)(b). That is the basis on which he came to the House, and clause 1(3) states that the section 4 provisions mean that we do not need a referendum. However, the statement—officially put by the Foreign Secretary or the Minister for Europe—refers to section 4(4)(b) of the Act and an article 48(6) decision. That is then elided, with the next sentence continuing that the treaty change provision contains this article 48(6) decision. That seems to imply that while the article 48(6) decision would allow this not to apply to the UK, actually, if one looks at the 48(6) decision, according to the Government and according to the recital, it prevents article 122 from being used in the future as it has been in the past.

Therefore the reliance on section 4(4)(b) would not be valid, so either, as I say, we are getting nothing in return for agreeing to the treaty change, or article 122(2) will no longer be able to be used to make the UK liable for bail-outs, in which case the Government’s statement as to why we are not having a referendum and why section 4 does not apply is incorrect, and we are acting unlawfully.

--- Later in debate ---

[Mr Cash]

rose—

[Mark Reckless]

rose—

[Mr Lidington]

My two hon. Friends have made other related comments, to which I would like to reply first. If they then wish to intervene on me, I will give way.

My hon. Friend the Member for Stone and the right hon. Member for Rotherham (Mr MacShane) said that the referendum pledge in the 2011 Act was meaningless because my right hon. Friend the Foreign Secretary could, in effect, decide on a whim whether a referendum was needed or not. They made reference to the requirement in the Act for the Secretary of State to make and publish a decision on whether a referendum was required. Those fears are wide of the mark, however. The Secretary of State is not permitted to act on a whim; he has to act in accordance with the law, and it is the 2011 Act that sets out in some detail precisely when a referendum is required. In making the statement to Parliament, the Secretary of State must say whether the referendum is or is not required under the terms of the Act.

My hon. Friend the Member for Rochester and Strood, in asking why no referendum was required in this case, pointed to what he saw as a contradiction in the Government’s approach. I need to divide my response to him into two parts. Paragraph 3 of the recitals or preamble to the decision of 25 March 2011 formally recalls the previous decision by the European Council that article 122(2) would no longer be needed and “should not be used”. The text of the decision comes after paragraph 6 of the recitals and is introduced by the words “has adopted this decision:”. The text of the amendment to the treaties is what is being ratified by this Bill. So the 2011 Act bites on the amendment to the treaties, which is the narrow addition to article 136 of the treaty on the functioning of the European Union. This measure would attract a referendum if it included one or more of the elements listed in sections 4(1) to 4(3) of the 2011 Act. Those subsections, which provide quite a long list, define what we mean by a transfer of competence or powers. This treaty amendment does not include any of those elements that require a referendum, so we do not require a referendum in this case.

[Mr Lidington]

That part of the Bill is included because it is a requirement of the 2011 Act that we bring this to Parliament to ask it to ratify formally the Government’s judgment as to whether or not a referendum is required. However, that judgment by the Government—that opinion embodied in the statement by my right hon. Friend the Foreign Secretary—followed a very careful analysis of the treaty amendment in the light of the provisions of the 2011 Act. Obviously I regret bitterly that I have clearly been unsuccessful in playing the role of Ariadne to guide my hon. Friend out of a labyrinth, but I somewhat suspect that he is not that keen to extract himself from it. The one thing he has not challenged me on is whether the treaty amendment contains any of the transfers of power or competence to the European Union from the United Kingdom specified in sections 4(1) to 4(3) of the 2011 Act. I am sure that we will have the delightful opportunity of pursuing those points further in Committee.

[Mark Reckless]

Will the Minister give way?

[Mr Lidington]

I will give way once more, but I do not want to pre-empt our discussions in Committee.

[Mark Reckless]

My concern is that in the statement provided to the House under section 5, the ministerial team has relied on section 4(4)(b), which states that a referendum will not happen when a treaty or article 48(6) decision applies only to member states other than the United Kingdom. The whole debate has relied on recitals from within that article 48(6) decision, saying that the provision gets us out of article 122 and that we will not have to contribute to further bail-outs. Surely the Government cannot have it both ways.

[Mr Lidington]

My hon. Friend is eliding two things. We have before us and are seeking to ratify through this Bill a treaty amendment. It relates to article 136, which applies only to those countries whose currency is the euro. Therefore, by definition, unless the United Kingdom were to join the euro, which would in itself require a referendum under the 2011 Act, it cannot apply to us. Alongside that treaty amendment, my right hon. Friend the Prime Minister successfully, and after a lot of hard work, negotiated agreement from all Heads of State and Government in the European Union that when the ESM comes into force, any future liabilities of the United Kingdom to bail out eurozone countries under the EFSM will be extinguished. That is a very significant gain for the British national interest and I hope that on reflection my hon. Friend the Member for Rochester and Strood will recognise it as such.

As I have said, in return for agreeing this treaty amendment, the Prime Minister secured agreement at the European Council that once the ESM is set up, article 122(2) of the treaty on the functioning of the European Union should no longer be used to safeguard the stability of the euro area as a whole. Our liability for future euro area financial assistance programmes under the EU budget will be removed and that is directly in the UK’s national interest. As my hon. Friend the Member for Camborne and Redruth (George Eustice) said, this gain for our interests should be considered as proportionate to the scope of the treaty change that we are considering, which is narrow and specific in what it seeks to achieve. We should also not ignore the fact that the ESM will provide the euro area with a permanent financial assistance mechanism to assist euro area member states in financial difficulty. We all share the enormous concern over the ongoing crisis in the eurozone and the chilling effect that it is having on our economy.

A stable eurozone is in the interests of the United Kingdom. We rely on those 17 countries for more than 40% of our trade, but that is only part of the picture. Confidence and stability in the eurozone are in our national interests and the resolution of the debt crisis in the eurozone would be the biggest single boost to business confidence that could happen in the British economy. That is precisely why the eurozone countries say that they need the ESM and why it is important to ensure, through all 27 member states ratifying the treaty amendment, that there is no room for doubt about that amendment’s and therefore the ESM’s compatibility with the European Union treaties.

We are not in the euro and the United Kingdom will not take part in the ESM, but it would harm our interests to stand in the way of the eurozone’s efforts to set it up and help sort out this crisis, a point made very strongly by my hon. Friend the Member for Stroud. No one is under any illusion that the European stability mechanism will be some silver bullet that will solve the eurozone’s problems overnight, but it is a step in the right direction.

When the right hon. Member for Paisley and Renfrewshire South (Mr Alexander), the shadow Foreign Secretary, spoke, he treated us to a lecture about the alleged failures of the Government’s economic policy. No Minister would stand at the Dispatch Box and say anything other than that the United Kingdom’s economic problems are deep seated and that they have been aggravated by the crisis in the eurozone, but what surprised me—perhaps I am insufficiently cynical—was the fact that there was not one word of regret from the right hon. Gentleman, let alone a morsel of contrition, for the contribution made by his Government to the economic woes from which the United Kingdom now suffers.

Some European comparisons are really quite interesting in this context. A number of hon. Members commented on the fact that some European Union countries have been more successful in recent years than the United Kingdom or the majority of EU member states have been, but it is telling to consider the contrast. Germany was paying down its debts when the Labour party was piling up the deficit here and maxing out the United Kingdom’s credit card. In the 10 years from 1997, Germany had annual growth in industrial production of 3% or more a year, while average growth in the United Kingdom over that period struggled to get above 0.2% annually. In the first decade of the 21st century, Germany maintained its share of world exports while the United Kingdom’s share almost halved thanks to the disastrous economic stewardship of the right hon. Gentleman and the Labour party.

The European Union, including the United Kingdom, needs a relentless focus on competitiveness and growth through deepening the European single market; building a single market in the digital economy, energy and services; cutting the costs of European regulation on businesses, especially small enterprises; and agreeing more free trade deals with Canada, Singapore, Japan, the United States of America and other regions of the world.

The legislation before us is one step forward, but it is only part of the strategy for renewing economic growth and competitiveness in the United Kingdom and in Europe as a whole. The Government will continue to pursue that strategy with vigour, energy and determination.

Question put and agreed to.

Bill accordingly read a Second time.

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

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the European Union (Approval of Treaty Amendment Decision) Bill [Lords]:

Committal

1. The Bill shall be committed to a Committee of the whole House.

Proceedings in Committee, on Consideration and Third Reading

2. Proceedings in Committee, any proceedings on Consideration and proceedings on Third Reading shall be taken in two days in accordance with the following provisions of this Order.

3. Proceedings in Committee and any proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the second day.

4. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

Programming committee

5. Standing Order No. 83B (Programming committees) shall not apply to proceedings in Committee of the whole House, to any proceedings on consideration or to proceedings on Third Reading.

Other proceedings

6. Any other proceedings on the Bill (including any proceedings on consideration of any message from the Lords) may be programmed.—(James Duddridge.)

Question agreed to.