European Union (Amendment) Act 2008

Richard Drax Excerpts

Wednesday 16th March 2011 Commons Chamber

[Mr Lidington]

My hon. Friend, uncharacteristically, underestimates the influence of our right hon. Friend the Prime Minister. When we look at how he has managed to assemble and lead a coalition of countries committed to greater budgetary discipline—something that would not have happened without his initiative—and when we look at the work that he is leading at a European level on the need for growth, competitiveness and deregulation, we can see that the influence of the Prime Minister and of the United Kingdom is being felt. I would encourage—

[Richard Drax (South Dorset) (Con)]

rose—

[Mr Lidington]

I am not giving way further.

I would encourage my hon. Friend the Member for Gainsborough to visit more EU member countries and talk to representatives of their Governments, and I think he will find that our right hon. Friend has in 10 brief months attained considerable respect and a high standing among the partner countries with which he deals and negotiates.

Let me turn to the proposed treaty change and how it came about. It originates from the need for a permanent mechanism to be established by the member states of the euro area to safeguard the financial stability of the euro area as a whole. As the House knows, in May last year the EU established two emergency instruments to respond to financial crises—the European financial stability facility and the European financial stability mechanism. Many hon. Members have expressed their unhappiness at the EFSM arrangements, to which, because of a decision taken in the dying days of the previous Government, this country is a party. That unhappiness is wholly shared by this Government. It is yet another mess that we have inherited and must seek to clean up.

Against that backdrop and the continued uncertainty in the financial markets, the members of the European Council agreed last December to amend article 136 of the treaty on the functioning of the European Union to provide that member states of the eurozone may establish a permanent stability mechanism. That will provide a necessary means for dealing with cases that pose a risk to the financial stability of the euro area as a whole, something that is important to us given the extent of our trade and other economic connections with the eurozone even though we are outside it and intend to remain so.

The proposed amendment contained in the draft decision adds the following paragraph to article 136:

“The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.”

By providing for eurozone members to establish a permanent mechanism, the European Council is making absolutely clear the responsibilities of all members of the euro area to each other and to the overall stability of the euro area. The proposed new paragraph will be added to treaty provisions that apply—I stress this point—only to member states whose currency is the euro. It does not apply to non-euro area member states and cannot confer any obligations upon them. We believe that financial problems within the euro area should be resolved primarily by euro area members.

The details of how the ESM will operate are being discussed in Brussels. In accordance with the conclusions of the December European Council, member states whose currency is not the euro can be involved on a voluntary basis in finalising work on what will be an intergovernmental arrangement to set up the ESM under the authority given by this proposed amendment to the treaties. My hon. Friend the Financial Secretary to the Treasury is responsible for overseeing UK input to those discussions.

I want to stress that while we are involved on a voluntary basis in the design of the mechanism—it is in our interests to be so—we cannot and will not be part of the mechanism. In fact, we could not be part of the ESM unless the UK first joined the euro area, and as the whole House is already aware, the Government have declared their intention not to join or to prepare to join the euro. Furthermore, under the terms of the European Union Bill, if any future Government were so foolish as to wish to do so, they could join only with parliamentary approval by Act of Parliament and the consent of the British people in a referendum.