The
Committee consisted of the following
Members:
Chair:
Hywel
Williams
†
Brown,
Lyn (West Ham) (Lab)
†
Goodwill,
Mr Robert (Scarborough and Whitby)
(Con)
†
Hemming,
John (Birmingham, Yardley)
(LD)
†
Hoban,
Mr Mark (Financial Secretary to the
Treasury)
†
Hopkins,
Kelvin (Luton North)
(Lab)
†
Kelly,
Chris (Dudley South)
(Con)
†
Leadsom,
Andrea (South Northamptonshire)
(Con)
†
Leslie,
Chris (Nottingham East)
(Lab/Co-op)
Love,
Mr Andrew (Edmonton)
(Lab/Co-op)
†
Murphy,
Paul (Torfaen) (Lab)
†
Sharma,
Alok (Reading West)
(Con)
Wilson,
Sammy (East Antrim)
(DUP)
†
Wollaston,
Dr Sarah (Totnes)
(Con)
Alison Groves, Committee
Clerk
† attended the
Committee
The following also attended,
pursuant to Standing Order No.
119(6):
Cash,
Mr William (Stone)
(Con)
Cryer,
John (Leyton and Wanstead)
(Lab)
European
Committee B
Tuesday 1
February
2011
[Hywel
Williams
in the
Chair]
Financial
Stabilisation
Mechanism
4.30
pm
Mr
William Cash (Stone) (Con):
On a point of order, Mr
Williams. I should like to seek leave to move the adjournment of the
Committee because I have grave doubts about the legality of the
proceedings. In particular, I will quote the remarks of the French
Finance Minister, Madame Lagarde, who, in respect of this provision,
stated on 17 December that the Greek and Irish bail-outs and the
creation of a temporary European rescue fund had been “major
transgressions” of the Lisbon treaty. She
said:
“We
violated all the rules because we wanted to close ranks and really
rescue the euro
zone”.
In
the circumstances, with £8 billion at stake as regards the
British taxpayer, this matter should be more carefully examined. I have
been in correspondence with the Minister and I have
answers—unsatisfactory answers—to certain questions where
I have asked for the legal advice to be provided.
I have also
asked for the other advice from the Treasury to be provided, but I have
been completely prevented from having that information. I will not go
into the details of the answer that I got, but I think that in the
circumstances we should adjourn the Committee. The matter is still
under scrutiny and, as Chairman of the European Scrutiny Committee, I
am deeply disturbed by the fact that it is being dealt with in the way
it
is.
The
Chair:
I thank the hon. Gentleman for that point of order.
I am disturbed to hear that he has not had satisfactory answers.
However, my understanding is that as he is not a member of this
Committee, he cannot move a
motion.
Kelvin
Hopkins (Luton North) (Lab):
Further to that point of
order, Mr Williams. I certainly have a great deal of sympathy and
understanding for what the hon. Member for Stone (Mr Cash) has just
said. I would like to move the adjournment of the Committee
formally.
Motion
made, and Question put, That the Committee do now
adjourn.—(Kelvin
Hopkins.)
The
Committee divided: Ayes 1, Noes
6.
Division
No.
1
]
AYES
Hopkins,
Kelvin
NOES
Goodwill,
Mr
Robert
Hemming,
John
Hoban,
Mr
Mark
Kelly,
Chris
Sharma,
Alok
Wollaston,
Dr
Sarah
Question
accordingly negatived.
The
Chair:
I understand that a member of the European Scrutiny
Committee wants to make a brief explanatory statement about the
decision to refer the relevant documents to this
Committee.
4.34
pm
Kelvin
Hopkins:
Thank you, Mr Williams. It is a pleasure to serve
under your chairmanship. It might help the Committee if I take a few
minutes to explain the background to the documents and the reason why
the European Scrutiny Committee recommended them for this
debate.
At
an extraordinary meeting of ECOFIN on 9 May 2010, agreement
was reached for a regulation—document (a)
—creating a European financial stabilisation mechanism, or EFSM,
as part of a comprehensive package of measures to preserve financial
stability in the EU. The regulation was based on paragraph 2 of article
122 of the treaty on the functioning of the European Union, which
allows EU financial assistance to be granted to a member state
facing
“severe
difficulties caused by natural disasters or exceptional occurrences
beyond its
control”.
It
provides for the EU budget to guarantee EU borrowing to support member
states in need, up to the level of €60 billion, or
£51.64 billion. Support under the EFSM would be provided in
parallel with funding from the International Monetary Fund and would be
subject to joint EU-IMF
conditionality.
The
financial regulation governing EU budgetary matters allows the
Commission, in exceptional or unforeseen circumstances, to submit draft
amending budgets to alter the EU budget for the current financial year.
Its draft amending budget No. 7 to the 2010 EU budget—document
(b)—proposes the creation of a new budget line for the guarantee
provided by the EU under the EFSM and a corresponding article on the
revenue side of the EU budget. The DAB proposes a token entry—a
so-called “pour mémoire” entry—for
commitment and payment appropriations as well as for revenue. If it
became necessary, the Commission would propose a transfer or amending
budget to provision the budget line with the relevant appropriations.
The DAB was adopted on 13 September
2010.
The
regulation establishing the EFSM requires the Commission to report
every six months on the operation of and continued justification for
the mechanism. Document (c), the first of those reports, concludes that
the need for the EFSM
persists.
When
the European Scrutiny Committee considered the first two documents, in
September 2010, it accepted the need for the urgent adoption of both
those measures, despite the breaches of the scrutiny reserve
resolution. However, it decided that the documents should nevertheless
be debated, given the possible budgetary liability to which the UK
might be exposed. The Commission’s first six-monthly report,
from December 2010, gives a useful overview of the latest situation
regarding the EFSM and is therefore highly relevant to this
debate.
The
Chair:
I call the Minister to make an opening
statement.
4.37
pm
The
Financial Secretary to the Treasury (Mr Mark Hoban):
Thank
you, Mr Williams. It is a pleasure to serve under your
chairmanship.
I will just say
a few words to introduce the debate on behalf of the Government. We
recognise that 2010 was a year of unprecedented instability in the
eurozone. It became abundantly clear that countries within the euro
area had no support mechanisms in place for times of economic upheaval.
There was no formal assistance mechanism for struggling member states
and no way to bolster ailing market confidence.
In short, the
eurozone had no plan B, and a eurozone with no plan B has serious
implications for the UK. More than half our trade is with Europe. We
may not be part of the euro or intend to be part of it, but the fiscal
and economic stability of the single currency remains of crucial
importance to the
UK.
In
the last few months, however, we have seen some significant changes. We
have worked with our European partners to secure agreement for a
European stability mechanism—a sensible and sustainable
long-term arrangement for the euro area. The UK will not contribute to
the European stability mechanism; instead, euro area countries will
look to other euro area countries for support. The treaty change
necessary to create this permanent mechanism does not involve a
transfer of power from Westminster to Brussels, to which we could not
possibly agree. This permanent mechanism will close down all previous
mechanisms, including the European financial stabilisation mechanism,
which we will discuss in today’s
debate.
Rather
than looking backwards, the Government intend to look at what the
future arrangements should be for the eurozone. We have demonstrated
that forward-looking approach in the successes secured through the
establishment of the ESM. Nevertheless, I know that hon. Members,
particularly those serving on the European Scrutiny Committee, will be
keen to debate the UK’s involvement in stabilising Europe in the
course of 2010. The hon. Member for Luton North referred to the
scrutiny reserve being placed on these documents, so it is important
that we have this debate. This is not the first time that the matter
has been debated in the House, but it is the first debate solely
dedicated to
it.
The
European financial stabilisation mechanism was set up in 2010. The
decision was made by the previous Chancellor of the Exchequer at an
emergency ECOFIN meeting on 9 May. The terms of the stabilisation
mechanism are set out in EU Council Regulation No. 407/2010, and it is
compatible with the treaty on the functioning of the European Union.
Whether we like being involved in this mechanism or not, the simple
fact is that until 2013 we must live with it. However, we should bear
in mind that where the stabilisation mechanism exposes the UK to
budgetary liability, that will arise only if a member state benefiting
from funding from the mechanism defaults on
repayment.
We
have ensured that the UK has no involvement in funding the European
stabilisation mechanism. We have moved on from the EFSM and learned
from the turbulence of 2010, although I am sure that we will have a
robust discussion this afternoon about the
mechanism.
Chris
Leslie (Nottingham East) (Lab/Co-op):
I am learning about
the procedure of European Committees, and I am always grateful to the
hon. Member for Stone (Mr Cash) for drawing the legal issues to
Members’ attention. Although we did not support the Adjournment
motion that he suggested and which was moved by my hon. Friend the
Member for Luton North, there is an interesting discussion to be had
about the legal rights in respect of this set of issues. To me,
however, that is a second-order issue compared with the actual impact
that these funds will have on stability and the economy, within the
eurozone in particular.
My questions
to the Minister are in five groupings. The first is about what effect
what we might loosely call EU rescue funds—the EFSM, the
European financial stability fund and whatever they eventually wrap
into the European stability mechanism—will have on bond
purchasing powers across the EU.
For example,
what is the Minister’s view on the current funds, or the
eventual ESM, being used to buy the bonds of struggling countries,
either on the open market or directly from the countries themselves?
Does he envisage that any revamped ESM might begin to behave as some
sort of eurozone debt agency, and what would be the implications of
that? Does he share the views voiced by Germany, for example, that bond
buying, or bond issuing by euro funds, might allow
“profligate” countries to have a free ride on the
creditworthiness of some of the more stable, triple A-rated countries
within the eurozone? That is my first set of issues for the Minister to
address.
Mr
Hoban:
I am grateful to the hon. Gentleman for his
question. At the moment, the mechanism, to which all members of the EU
contribute, and the facility, to which only members of the eurozone
contribute, are set up to give direct financial assistance to member
states; they are not set up to acquire sovereign debt issued by other
member states. I do not believe that there is a proposal on the table
currently to allow the permanent mechanism to do that. There is a
significant debate about the issue in Europe. There are no formal
proposals, and it would be inappropriate for the Government to comment
until any such proposals are
made.
Mr
Cash:
I would be grateful if the Minister answered the
question that I put to him in a written question, to which I received a
reply about 40 minutes ago, relating to the advice received. The
question was whether he would place in the Library a copy of the legal
advice, and other written advice received by Treasury Ministers, about
the mechanism. The answer that I received, with which I am anything but
satisfied,
stated:
“Treasury
Ministers received advice on this issue, including legal advice, as
part of the normal process of policy development. Policy development
and information relating to recent policy announcements need a degree
of freedom to enable the process to work effectively. The release of
information so soon after discussions took place would result in less
full and frank discussions in the future, harming the policy
formulation and development
process.”
On
that basis, I suggest, there would be almost no answers to any
questions at
all.
Mr
Hoban:
My hon. Friend asked for documents to be placed in
the Library, which is not the standard practice. He and other hon.
Members will be aware of matters that relate to the release of Cabinet
papers, such as the 30-year rule. He will be aware of routes through
the Freedom of Information Act and of exemptions that apply, and he
will know that we are following usual Government
policy.
Kelvin
Hopkins:
In a document to the European Scrutiny Committee,
the Economic Secretary stated
that
“the
Government believes that financial problems within the euro-area should
be primarily resolved by euro-area Member States—however, it is
in the interests of all Member States to support a stable and fully
functioning
euro-area”.
Is
that not simply a get-out that will result in Britain being sucked in
to bail out big countries when they get into trouble? Would that not be
a bottomless pit when we have our own financial
problems?
Mr
Hoban:
The hon. Gentleman should reflect on the package
that was put together for Ireland, in which funding came from a series
of sources. It came from the mechanism; from the facility; and from
bilateral loans from the UK and others. It also came from the IMF, all
of whose members contributed implicitly to support for the bail-out. If
there were a future bail-out involving the IMF, anyone who contributed
would be involved. Under the permanent structure that we have put in
place, however, we have made it clear that support for euro countries
should come from other euro-area countries.
John
Hemming (Birmingham, Yardley) (LD):
The Minister explained
that under the new mechanism Britain will not be underwriting just over
an eighth. Will the moneys that have been loaned under the previous
mechanism transfer to the new one, or do we remain contingently liable
for such sums?
Mr
Hoban:
My understanding is that the moneys that are lent
now will remain outstanding under the previous
mechanism.
Chris
Leslie:
I want to move on to ask about the Irish bail-out
and the loans that we discussed on the Floor of the House. The
Financial Times and others have speculated recently that the
Irish loan arrangements from the EU might be reopened, either to extend
the repayment period or to cut the interest rate. Is it likely that the
UK’s bilateral loan arrangement would be similarly revisited in
parallel? I know that the classic answer to a hypothetical question is,
“That is hypothetical; we will address it when the time
comes.” However, if such changes are made, either to the
repayment period or to the interest rate levels on the European loans,
it would be useful to know whether that is the sort of matter that we
would have an opportunity to debate again in the House of
Commons.
The likely
future Irish Finance Minister, Michael Noonan, has been speculating in
the press that the interest rates on the Irish loans from the European
Union are too high. There has been much discussion about that, so I
want the Minister to tell us not about the detail, but the procedure.
Will we be able to return to that matter in a parliamentary
context?
Mr
Hoban:
The hon. Gentleman has provided his own answer:
that is a hypothetical situation. I am aware of the comments that have
been made by the man who wishes to be the Irish Finance Minister. It is
unclear whether he is seeking to renegotiate how the Irish fiscal
retrenchment package works or the loans themselves. The loan agreement
has been agreed, however, with the
Irish Government and has gone through the Irish Parliament, so it would
be a significant departure if they sought to renegotiate it, and they
would have to deal with circumstances as they arose.
I shall take
the opportunity to shed further light to my answer to the hon.
Gentleman’s first question. Article 125 of the treaty
on the functioning of the European Union prevents member states from
bailing out other member states through a grant or loan, so we would
need to bear that in mind in any proposals under a mechanism. The
assistance given under the mechanism and the facility is a loan rather
than a grant or gift.
Mr
Cash:
Would the Minister be good enough to give me a
simple answer to a question arising from the explanatory memorandums
and other papers supplied by the Government? According to those
documents, the arrangements for the European financial
stability mechanism are similar to those applied in the case of
Hungary, Latvia and, I think, one other country. Does the Minister know
from what provisions those countries obtain their money? How can he
justify the similarity of the
arrangements?
Mr
Hoban:
The EU member states that my hon. Friend refers to
are outside the euro. They had received financial support to enable
them to deal with balance of payments problems. There is a precedent
for the European Union’s giving financial support to member
states in particular circumstances.
Mr
Cash:
Further to that answer, bearing in mind the fact
that the Hungarian, Latvian and other facilities were made available
under the all-embracing article 308—now article
352—of the treaty related to the functioning of the European
Union, how can the Minister compare them with the use of article 122,
which is regarded by the European Scrutiny Committee and its legal
advisers as legally unsound?
That article,
which is the basis of this document and which we assert is legally
unsound, is based exclusively on matters relating to national
disasters, emergencies and things of that kind. It was never
contemplated that it would be used for the purposes of putting right
horrendous financial and economic mistakes of the kind that have led to
the
bail-outs.
Mr
Hoban:
I understand how my hon. Friend and his Committee
have construed article 122(2), but I am not aware that there is a
significant body of legal views that supports his contention. The
article
states:
“Where
a member state is in difficulties or is seriously threatened with
severe difficulties caused by natural disasters or exceptional
occurrences beyond its control, the Council, on a proposal from the
Commission, may grant, under certain conditions, Union financial
assistance to the member state
concerned.”
It
is not clear to me that article 122(2) relates exclusively to natural
disasters.
Mr
Cash:
I was seeking an Adjournment earlier. Sadly, the
Adjournment motion was defeated, thanks to the failure of certain
members of the Committee to abstain, or at least not vote for the
proposal. The reason why I wanted an Adjournment was clear.
How
does the Minister equate what he has just said—about there not
being any apparent evidence for the assertion of the European Scrutiny
Committee and its legal advisers that the use of article 122 was
legally unsound—with what Madame Lagarde clearly stated on 17
December? She said that all the rules had been violated. She clearly
took some relish in the fact that the law did not seem to matter as
long as the eurozone was rescued, as she put it. She made it quite
clear that there had been a major transgression of the rules of the
treaty. She is the French Finance Minister.
Mr
Hoban:
I am accountable for my words, not for those of
Madame Lagarde. Without seeing the quote or the context, I cannot
express a view. What I had said in response to my hon. Friend’s
question was that there had not been a substantial body of criticism
for the use of article 122. The only legal action that I believe has
been taken to suggest that the mechanism was in violation of the treaty
was a private action, which was struck
down.
The
Chair:
Order. I remind hon. Members that this is a narrow
debate on the European financial stabilisation mechanism itself and the
possible consequences for the UK Exchequer. Also, questions should be
brief.
Chris
Leslie:
My third set of questions relates to the
conditions attached to either the EFSM or other stabilisation
mechanisms, most of them relating to the austerity measures that often
accompany such loans. Is the Treasury making any assessment of the
impact on our economy, particularly trade, of any added austerity
conditions or measures that are agreed in relation to further capital
support loaned to eurozone countries as part of the stabilisation
funds? For example, did the Minister notice that Ireland’s
growth forecast has been downgraded from 2.3% to 1% this
week?
Will
the Minister acknowledge that whatever happens in the eurozone,
especially if all the eurozone countries contract their economic
activity contracts simultaneously because of austerity conditions, it
will hit the UK’s growth prospects further still? Is he content
that new budget rules in the eurozone, which might fine member states
that exceed set sovereign debt levels, could have an impact on our
economy? I just want to get a sense of the Treasury’s
assessments of that eurozone-wide set of austerity measures. Are his
officials making any assessment of that at
all?
Mr
Hoban:
The responsibility for making economic forecasts
rests with the independent Office for Budget Responsibility, not the
Treasury.
Chris
Leslie:
Oh.
Mr
Hoban:
The hon. Gentleman may be unaware of that. I
thought that as a member of the shadow Treasury team he was aware that
the OBR undertakes that process. There is a challenge. There is
widespread recognition that unless member states tackle their deficits,
there will be continuing instability in the eurozone, which will cause
a seepage of confidence and have an impact on economic growth. The hon.
Gentleman referred to sanctions. Eurozone members, and non-eurozone
members like us ran up significant deficits when times were good and we
are paying the price for that now.
There
is concern about the lack of fiscal discipline, but measures are in
place to reassert that. We have introduced our own measures in the UK.
In the eurozone, there was concern that without a proper sanctions
mechanism the eurozone would repeat the mistakes of the past. It is
important that the advice provided by the Van Rompuy task force results
in action to tackle these matters, which is why the eurozone is moving
down the route of a series of graduated
sanctions.
Chris
Leslie:
We ran up deficits as a result of the
banking bail-out, with a consequential effect on the economy, but that
is a debate for another time. I am not simply abrogating responsibility
for the forecasting issues to the OBR. The Treasury has a negotiating
role and the Minister has a representational role as the stabilisation
funds change, so he will be mindful of the effect that excessive
austerity conditions on further amendments to those stabilisation funds
could have on our economy. Does he wish to deny that there is any
impact on his negotiating position as it goes forward of that
particular effect on our own
economy?
Mr
Hoban:
For the recipient of any payment package, it is
important to ensure that any additional debt is sustainable. That is
clearly part of the position taken by the IMF and others when assessing
the impact of the package. One reason why we took part in the Irish
bail-out was because of the impact of instability in Ireland on the
Northern Irish economy and the UK financial
sector.
Mr
Cash:
Will the Minister be good enough to explain why, in
his statement about the European Council last December, the Prime
Minister responded to a question from me about the use of article 122
by saying
that
“in
two ways the previous Government made a bad mistake”?
Why, as we point out in
our report on another document, does the Minister for Europe take a
different view and argue, as does the Minister, that the use of article
122 is compatible with the requirements of the
treaty?
Mr
Hoban:
I go back to the answer that my right hon. Friend
the Prime Minister gave to my hon. Friend. He said:
“That
argument was had and was conceded under the previous Government in two
ways. First, they agreed the establishment of the mechanism. Secondly,
if we go back to the Nice treaty, it was the then Europe Minister, the
right hon. Member for Leicester East (Keith Vaz)…who argued from
the Dispatch Box that it was perfectly okay for article 122 to go to
qualified majority voting”.—[Official Report, 20
December 2010; Vol. 520, c.
1193.]
Kelvin
Hopkins:
I refer the Minister to my first question. I want
him to come back on that, because he referred to Ireland in his
response. Was it not the case that Ireland was a one-off situation,
that the House understood it was personal support for a very close
neighbour with whom we have the closest possible links and that it was
seen to be not general support for the eurozone, but specific support
for Ireland because of its close historic and economic links to
Britain?
Mr
Hoban:
It was because of our close links with Ireland,
which was the justification for the bilateral loan. The point I made,
and to which the hon. Gentleman has referred, is that it is primarily
the responsibility of the euro area to draw out the engagement and
involvement
of the International Monetary Fund in supporting Ireland, as the IMF has
supported other countries that needed to borrow to ensure that they are
able to retrench their fiscal
position.
Kelvin
Hopkins:
The IMF is another matter. We contribute to the
IMF for many purposes across the world. No doubt we could continue to
support the IMF, and the IMF may choose to help to support the
eurozone. That is completely different from Britain contributing
directly to the EFSM as part of the European Union. Supporting the IMF
is one thing; supporting the eurozone directly through the EFSM is
something entirely
different.
Mr
Hoban:
We were banned by virtue of the decision taken on 9
May by the previous Chancellor of the Exchequer from being part of the
EFSM. We had no choice in that matter. We were locked into it. The
choice was whether or not we gave a bilateral loan to Ireland. It was
the hon. Gentleman’s colleague, the right hon. Member for
Leicester East (Keith Vaz), who was content for article 122 to go to
qualified majority voting. Had he decided to go for unanimity, we would
not be in the position we are in
today.
Kelvin
Hopkins:
I have one more question. I would not have
supported that, and I am pleased to be reminded of it, but is the
Minister saying that we are trapped, whatever we do, if the eurozone
goes belly-up and countless billions are needed to support Spain,
Portugal and possibly Italy, too? Would we have to shell out from our
already stretched finances, because we cannot get out of
it?
Mr
Hoban:
The hon. Gentleman needs to bear in mind two
things. First, these are loans, not gifts—gifts or grants are
banned by article 125—so we expect the money to be repaid.
Secondly, the EFSM is limited to €60 billion, so there is a cap.
We bear our share of that in proportion to our contribution to EU
funds, but it is capped at €60 billion, so we are not
contributing to a bottomless pit. It should be recognised that the
facility is for a much more significant sum, €440 billion, but
we are not part of that facility. It is a euro-area only
arrangement.
John
Hemming:
To clarify, at the moment under the mechanism,
some €20 billion has been loaned to Ireland, of which we may
have to pay an eighth if Ireland does not pay, and Greece is not part
of it. Is that
right?
Mr
Hoban:
Ireland was the first country to use the
mechanism.
Chris
Leslie:
I want to ask about the role of UK Ministers in
decisions on the EFSM, particularly going forward. Which Ministers are
involved in the discussion? Presumably the Minister is involved, or is
it simply the Chancellor of the Exchequer? Does the UK play a part in
eurozone-specific discussions and negotiations? If so, what is it? Is
it that of an observer or a participant? I want to know the technical
nature of the UK’s locus in those negotiations as they progress.
Has the Treasury
set out the principles underlying its representations in those
discussions and negotiations, and what are they? What are the key
points that the UK Government are seeking to achieve in those
mechanisms? Finally, if treaty amendments are envisaged, when are they
likely to be introduced in
Parliament?
Mr
Hoban:
The hon. Gentleman raises some helpful issues. The
parameters for the mechanism were laid down at the December Council. I
might expand on them in the debate, but as a consequence we secured
agreement that the existing mechanism would come to a close no later
than 2013 and that we would not be required to participate in the
European stabilisation mechanism. Those were key negotiating objectives
that we were able to
achieve.
Having
set out the mandate in the December Council, work is currently under
way at an official level on the design of the permanent mechanism. The
aim is to conclude discussions by the time that the spring Council is
held. Such work is at an official rather than a ministerial level, but
will doubtless come up for debate at Ecofin—either the
Chancellor of the Exchequer or I will attend those
meetings.
We
are taking part in the discussion, as are all member states—it
is not restricted to members of the euro area. That is important,
because the mechanism that is designed, although aimed at and financed
by eurozone member states, might have some spill-over effects that
could affect the whole Union. It is right that we participate in the
debate, although it is not our intention to join the euro. As the
Committee knows, the European Union Bill, which receives its fifth day
of debate in the House today, will require primary legislation to
authorise any treaty change. The mechanism is not a transfer of power
from Westminster to Brussels, so it does not require a referendum, but
it will require primary legislation, which will be introduced in due
course.
Chris
Leslie:
If the UK is fully involved in the discussions, do
we have a veto on the outcome of any final mechanism, or is it being
debated under a qualified majority arrangement? What power might the UK
have over the final design of the stabilisation
mechanism?
Mr
Hoban:
I will not go into the ins and outs of the dynamics
of the discussions. They will work in different ways at different
times. However, member states recognise the UK as a significant
economy, with a global financial centre that helps to meet the needs
not just of the UK but of the European economies, so we have a voice.
The hon. Gentleman probably recognises that the extent of our influence
is restricted by the fact that we will not contribute to the
mechanism.
Mr
Cash:
Returning to my previous exchanges with the
Minister, will he concede or comment on the fact that the Prime
Minister, on 20 December, said that the previous Government agreed to
the establishment of the mechanism, and that the Chancellor of the
Exchequer acquiesced in that? Indeed, the legal opinion has been
endorsed by the Minister for Europe. Furthermore, with regard to
question of the attitude of the then Europe Minister when the Nice
treaty was going through, he might have said that article 122
prescribed qualified
majority voting, but he did not say that it should be used for purposes
outside the framework of the legalities of the
treaty.
Mr
Hoban:
My hon. Friend has his own view about the legality
of the use of article 122, which he has made clear, but the then Europe
Minister did argue that QMV was appropriate for article 122. We cannot
dispute that, so that is the appropriate
route.
My
hon. Friend mentioned the Government acquiescing in the creation of the
mechanism. I am not sure what he means, because the decision was taken
by the previous Chancellor of the Exchequer before the current
Government was formed. We are locked in by that decision, so I would
not describe that as
acquiescence.
Mr
Cash:
The Political and Constitutional Reform Committee
heard evidence, including significant reference to all this, only a few
days ago. The proceedings are now published in the fourth report of the
session, if anyone is interested. The whole episode is discussed,
indicating that at that time, the Chancellor
“cautioned
against committing the UK to proposals that have a lasting effect on
the UK’s public
finances”.
In
such circumstances—and there is more in the report—why is
it that, subsequent to that statement, which presumably comes from the
former Chancellor or somebody, the whole process has been endorsed in
relation to Ireland and therefore is open to further use in respect of,
shall we say, Portugal, Spain or any other member state, which could
draw on this pot of £60 billion, to which the British
taxpayer is now
committed?
Mr
Hoban:
To make the position clear to my hon. Friend, we
are committed to that fund, proportionate to our share of the EU
budget. We are not committed to the whole £60 billion. I have
not seen the evidence session to which the hon. Gentleman refers, but
we are locked into this mechanism. As I have said, I do not think that
there is any substantial body of legal advice or dispute about the
legality of it, and this is where we are
at.
Mr
Cash:
I want to follow up that particular point. It would
be possible, would it not, to seek an action for a declaration in the
United Kingdom courts to clarify this? After all, we are talking about
sums of around £8 billion, which can be drawn down. It
is taxpayers’ money, and I am sure the Minister, as a
responsible Financial Secretary, would not want to see that money used
in a manner that was unlawful or unacceptable. Will he give provide
further reference on the private action that he has
mentioned?
Mr
Hoban:
I know that my hon. Friend is concerned about the
legality, but, as I said to him, there is no significant body of legal
evidence or dispute about the legality of it. Why pursue a court action
when there is no substantial dispute about
it?
Mr
Cash:
With respect, the Minister himself said that there
was a private action, which he said was struck out. I would be grateful
if he gave me full details, as it is material to the answer that he has
just given.
Mr
Hoban:
I can write to my hon. Friend with the
details.
Kelvin
Hopkins:
I understand from my documents that ECOFIN has
agreed to complement the regulation with a special-purpose vehicle, the
European financial stabilisation facility. That is an agreement between
euro-area member states only; we have chosen not to participate in it.
I do not know how much it is worth in terms of borrowing or lending
capacity, but would it not be right for us to say as a country,
“That’s the fund for your support in the eurozone. The
other fund should be for other
purposes”?
Mr
Hoban:
As I mentioned in response to an earlier question,
the European financial stability facility has a value of some
£440 billion. We have chosen not to be part of that. It is an
intergovernmental agreement between Governments of eurozone member
states, and it is that facility that the permanent mechanism is seeking
to replace. But funds have been discussed in the context of the Ireland
package, and clearly there was a view in ECOFIN that some funds should
be drawn down from the mechanism as well as the
facility.
Kelvin
Hopkins:
Is this just a case of the eurozone countries
drawing Britain into supporting the eurozone countries, rather than the
eurozone countries supporting each
other?
Mr
Hoban:
That is exactly why we fought at the December
Council for a permanent mechanism to which we did not have to
contribute. That is the right place to be, and I am pleased that the
hon. Gentleman supports us in that, but we are dealing with the legacy
of the decision taken by the right hon. Member for Edinburgh South West
(Mr Darling) on 9 May.
John
Hemming:
On 9 May, the then Chancellor of the Exchequer
underwrote the mechanism to the tune of €8.28 billion, or
£6.76 billion. So far, some of that has been committed to
Ireland. Do we have any control over how much more might be committed
from the mechanism?
Mr
Hoban:
There are no requests on the table at the moment
for money from that
mechanism.
Chris
Leslie:
I was interested to note that the Minister was not
able to specify whether the UK’s role in the debate and
negotiations on the future stabilisation mechanism came about through
unanimous consent, the potential of a veto or qualified majority
voting.
Has the
Minister seen the latest developments, particularly from France and
Germany? They have started to talk about economic government,
suggesting that the eurozone countries, plus any volunteers that may
wish to join them, impose certain austerity conditions on future
funds—for example, on pensions and retirement ages, on
corporation tax levels or on what are called debt breaks, to prevent
higher expenditure. The eurozone countries may be going in that
direction, and Britain may not be part of that move, but would the UK
have the right to veto such a development?
Mr
Hoban:
The hon. Gentleman opens out things beyond the
mechanisms that we are debating today—and, yes, I suspect beyond
the European stability mechanism that is envisaged. He raises a serious
question, which is how to instil fiscal discipline in eurozone member
states when there is a sense that they will be supported by other
eurozone member states. That is the subject of a live political debate
in a number of eurozone countries. It is one reason why the Van Rompuy
taskforce was set up to consider the mechanisms that could be used to
enforce fiscal discipline. Sanctions were proposed for eurozone-only
countries to beef up the excessive deficit procedure.
The process is
being debated at the moment, and I am sure that the European Scrutiny
Committee will want us to discuss it. It has already put a scrutiny
reserve on the six documents that will form the basis. However, the
issue is so volatile—that is not quite the right word, but so
many ideas are bubbling up that it would be unfair to spend time
discussing one in particular.
Mr
Cash:
Will the Minister confirm that the proposal
currently being referred to—it may be one of the
“bubbling up” points—is supposed to be concluded
by late March with regard to the €440 billion rescue fund?
Substantial movement is taking place in the eurozone as a
whole.
Would it not
be more appropriate for us to act in respect of this misconceived and
damaging commitment, made on behalf of the United Kingdom in relation
to this particular mechanism, rather as the Irish Government did when
they unlawfully agreed to allow the European Commission and others to
enter Dublin before making the request? Should we not consider taking
similar action, arguing that the mechanism is unlawful, and refusing,
as of now, to make any further payments in respect of any other
countries?
Mr
Hoban:
I do not feel that I am ever going to be in a
position to satisfy my hon. Friend on the question of legality. He has
his view, and I have mine. There is nothing that I can add to clarify
the
situation.
Kelvin
Hopkins:
Is it not possible in extreme circumstances to
renegotiate the agreement—to draw back from where we are
now?
Mr
Hoban:
In a sense, we have, and hon. Members who are
particularly interested in this should stop and think about what we
achieved at the December European Council, which my right hon. Friend
the Prime Minister referred to in his statement. My hon. Friend the
Member for Stone (Mr Cash) was there—I know that, because I have
the transcript in front of me.
We have
succeeded in reaching a situation where the European financial
stabilisation mechanism will expire, no later than 2013. It will be
replaced by a permanent mechanism that only eurozone member states will
contribute to. As a consequence of the agreement in December, there
will be no possibility of article 122 being used again in the
mechanism.
The
Government have sought to move on from the position that we inherited
in May, to learn some of the lessons and to look for permanent
solutions that do not involve the UK’s having to contribute to
the European financial stabilisation mechanism. That is the right thing
to do, and I hope that the hon. Gentleman accepts that and will be
voting for the motion.
Kelvin
Hopkins:
I am pleased that the mechanism is going to
expire, but the show may be over by then—whatever is going to
happen to the eurozone will happen before then. It will either survive
or be in much more serious trouble than it is now. Hopefully, we will
not in future have such liabilities and commitments to the eurozone. If
anybody defaults on the loans, I understand that they will be
guaranteed by the EU budget, to which we contribute. Even after the
mechanism expires, therefore, there might be a situation where the EU
makes loans to countries in trouble, they default, the budget takes up
the slack and we contribute more to the budget. Is that not the
case?
Mr
Hoban:
The European financial stabilisation mechanism does
create a contingent liability for the UK. If a member state defaulted,
we would have to contribute our share to the budget in proportion to
other countries. But we are not required to contribute to the
mechanism; we do not have to put a single pound into it. It is for the
eurozone member states and it is financed by eurozone member states. In
respect of loans made by that body, I do not believe that that will
have an impact on the UK in the way that the hon. Gentleman suggests.
That is a success that we achieved in December at the European Council
meeting.
Mr
Cash:
A couple of weeks ago, the Prime Minister remarked
at a press conference, after he had met Mr Fillon, that he
would not be lured into similar arrangements. Will the Minister accept
that that was without prejudice to the fact that if there were any such
arrangements or economic governance, that would be under a treaty that
we would be involved in, despite the fact that we would be excluded
from the considerable and damaging impact that it would have on us if
the other member states went
ahead?
Mr
Hoban:
I am not sure whether my hon. Friend is arguing for
us to be involved; it seems that that was an argument for us to be
involved. I am not sure that that is where I thought he would be on the
matter.
Mr
Cash:
I am arguing strongly that we should not be party to
a treaty. We should veto that treaty. Indeed, The Times has said
that any such treaty should be subject to a referendum, and I happen to
agree. We should, therefore, not be involved in that sense, and we
certainly should not be involved in a treaty of that
kind.
Mr
Hoban:
The treaty change that is on the table is one to
set up the permanent mechanism and to ensure that there is a permanent
facility in place for the eurozone to bail out or support other
eurozone member states. My hon. Friend is going on to a debate beyond
where we are at the moment. I know his particular concerns about EU
economic governance, but what is on the table is not what my hon.
Friend is
envisaging.
John
Hemming:
Does the Minister agree with the hon. Member for
Luton North that we should congratulate the Government on working to
extract ourselves from the mess created by the underwriting of the
previous Chancellor in May this year?
Mr
Hoban:
As ever, my hon. Friend is wise and sagacious, and
I encourage the hon. Member for Luton North to look closely at the
wording of the motion and join us in welcoming the fact that the United
Kingdom would not be required to contribute to the European financial
stability mechanism. I look forward to his voting with us if the motion
is put to the vote
later.
Motion
made, and Question
proposed,
That
the Committee takes note of European Union Document No. 9606/10,
relating to a Council Regulation establishing a European financial
stabilisation mechanism, and European Union Document No. 12119/10,
relating to a draft amending budget No. 7 to the General
Budget 2010—Statement of expenditure by Section—Section
III—Commission; supports the Government’s view that
whilst it is in the interests of all Member States to support a stable
and fully functioning euro area, financial assistance for euro area
Member States should primarily be provided by other euro area Member
States; and supports the Government’s position that the United
Kingdom should not be required to contribute to the European Stability
Mechanism that will permanently replace both the European Financial
Stability Mechanism and the European Financial Stability
Facility.—(Mr
Hoban.)
5.25
pm
Chris
Leslie:
I do not wish to detain the Committee longer than
necessary. Clearly, we shall not be opposing the mechanism, as our
predecessors in the former Administration were involved in its
agreement on 9 or 10 May. However, I would like the hon. Member for
Stone to pick up on the point he made earlier on the Floor of the House
where there was indeed some discussion about the cross-party bipartisan
agreement that had been discussed. It is not quite the case that the
new incoming Ministers involved were not consulted at
all.
Mr
Cash:
I can confirm that, from the evidence I have from
the Political and Constitutional Reform Committee report, there was
consultation with the present Chancellor and the Secretary of State for
Business, Innovation and Skills. In his evidence to the Justice
Committee, the previous Chancellor said that their view was that
as
“I
was still the Chancellor they were not offering an opinion as to what I
should
do”,
but,
as I said earlier, the present Chancellor said that
he
“cautioned
against committing the UK to proposals that have a lasting effect on
the UK’s public
finances”.
In
other words, there was a going along with it, despite deep
reservations.
Chris
Leslie:
Whatever those reservations and cautions, the fact
is that there was dialogue and a level of consultation. My
understanding is that the Minister’s interpretation of matters
is a completely binary issue of being opposed to it and so forth, and
that is not quite the case. Nevertheless, we have to hope that the
eurozone is turning the corner and that the bond market contagion issue
is a thing of 2010, not of 2011. Markets are looking, I hope, more to
other parts of the world—there is talk of what is happening in
the middle east and Japan—but could easily return if the wrong
path for reform were
chosen.
It
is true that the EU has been using a set of rather ad hoc funds,
including the financial stabilisation mechanism that we are debating
today, for some time. There has been criticism from the IMF in
particular, and elsewhere, that Europe needs to pull together for a
permanent
mechanism. It would be a little disingenuous of the Minister to suggest
that that was driven at the insistence of our great Prime Minister and
that it was a British initiative entirely. Actually, it was something
that was necessary and would have been pressed on the EU more broadly
on an international
level.
However,
it is necessary to have the crisis funds overhauled in such a way. I
tried in our question session to ask the Minister specifically about
where the issue is heading, in terms of bond purchase and the effect on
the Irish loan arrangements and in particular in terms of the austerity
conditions that it could impose on the eurozone—and indirectly,
therefore, on our economy. I am not quite convinced that the United
Kingdom Government have a long enough line to represent British
interests in the debates, given the role that they have on the future
forms of the
mechanism.
Kelvin
Hopkins:
I agree entirely with my hon. Friend. There is a
serious danger that all the European Union countries would start
deflating together; that would just drive us into a black hole of
recession. What was his view when the Prime Minister came back, early
in the new Parliament, claiming success and that the cuts programme
announced by the Government was being echoed and reflected in other
countries in the European
Union?
Chris
Leslie:
That showed the lack of understanding of the
current incumbents within the Government, whether Liberal Conservatives
or Conservative Conservatives, about the effect of public spending
reductions at such a rapid pace on economic activity. Unfortunately we
have seen its effect on growth in this last quarter in the UK. My worry
is that the simultaneous shrinkage of public expenditure levels across
the eurozone will have an undoubted effect on our economy, yet there is
no Treasury analysis of what that might be. The Treasury is saying,
“It’s a matter for the Office for Budget
Responsibility”. I hope that Ministers will at least commission
the OBR to take a view on that.
I am concerned
that the Minister does not seem to have a clear view about what
leverage the UK might have on the future design of the stabilisation
mechanism—is it a veto leverage or is it done by qualified
majority voting, and how will that develop in future? The Minister has
done his best in today’s Committee, but we need stronger
leadership and a better sense of where we are heading on these
issues.
Mr
Cash:
Despite the hon. Gentleman’s attempts to
throw sand in everybody’s eyes, the bottom line is that his
party was responsible for making this decision. However, does he accept
that one cannot have growth on the back of a bankrupt Europe? The
public sector is involved in this, because the bottom line is that
there is no money to pay for public expenditure that does not come from
taxed private enterprise. As I said on ConservativeHome today, with the
exception of Germany the problem of growth is at the heart of this,
which is why we should not be throwing good money after bad on unlawful
schemes such as this
one.
Chris
Leslie:
I agree with the hon. Gentleman that growth is
absolutely at the heart of the matter, but pulling up the drawbridge,
sticking our fingers in our ears and closing our eyes to our near
trading neighbours
is absolutely not the way forward. Our fate and theirs are intertwined,
and if those countries shrink back, as my hon. Friend the Member for
Luton North has said, that will affect our ability to trade with them.
Those concerns need placing right at the heart of negotiations for the
stabilisation mechanism. There are echoes of the problems at the
Department for Business, Innovation and Skills in not recognising that
growth is important, and we know that the Government are failing to
recognise that. Specifically in these negotiations, I do not yet get
the sense from the Minister that he recognises the role that a proper
growth policy and growth strategy needs to have in his negotiating
stance on the permanent stabilisation
mechanism.
John
Hemming:
Without questioning the fact that growth is
important, does the hon. Gentleman know of any country that has managed
to spend its way out of a sovereign debt
crisis?
Chris
Leslie:
I do not think that is under contention. The point
is that different countries have different strategies, but collectively
the eurozone has a big impact on our economy. Surely the hon. Gentleman
cannot deny that? Therefore, the economic activity within the
eurozone—this is a bit like an ABC lesson for Government
Members—has an impact on our economy, too. All I want to
establish is his Government’s policy stance in taking forward
negotiations on the future stability mechanism, in respect of ensuring
that growth is positive, not negative, within the
eurozone.
Kelvin
Hopkins:
On that point, in 1945, Britain’s gross
debt was 2.5 times its GDP. It was reduced simply by sustaining full
employment and public expenditure for decades afterwards, and it came
down to 40% of GDP at some point.
Chris
Leslie:
History has a number of lessons for us to learn
and reflect on, as my hon. Friend says. I do not wish to make any
further comment. We are clear where this fund is going. It is a pity
that it has taken such a long time for the European Committee to debate
this particular financial stability mechanism, when we are now at the
point where it is almost redundant and we are moving to a permanent
mechanism. I hope that the Committee has an earlier opportunity to
debate that, if indeed the Council agrees this new permanent
arrangement in the spring.
Mr
Cash:
I am sure that the hon. Gentleman is not implying
any criticism of the European Scrutiny Committee, because it was not
set up when the decisions were made. It was set up only in September,
and we immediately recommended the matter for debate. In addition, the
reason it has taken so long since then—to the present
day—is because the Government have not brought the matter
forward until today, in terms of the usual channels. So, there is a
slight history behind all
that.
Chris
Leslie:
I knew that the usual channels would be involved
in this somewhere or other. On that point, I conclude my
remarks.
5.34
pm
Mr
Cash:
As hon. Members will appreciate, I made some
reference to all this in a debate on the European Union Bill on the
Floor of the House. I regard the matter as being extremely serious for
a variety of reasons, many of which will have become apparent during
the questions that I
asked.
As
I said in the House, I do not want to engage in a witch hunt, but I
believe that it is extremely important that we get to the bottom of
questions of this sort and that we find out how the decisions were
taken. Therefore, I was profoundly disappointed when I received the
answer to a question 40 minutes before the beginning of these
proceedings. To paraphrase, it said that it is not in the interests of
the Government for me to be given answers to such questions. That is
not terribly surprising in the circumstances, because this is a very
tangled skein. It is an unfortunate situation, exposing British
taxpayers to £8 billion worth of underwriting, if I can put it
in those terms, and it is quite possible that the money will be called
upon. We do not yet know what will happen to Portugal and/or Spain. If
something is going to happen, it will happen before March 2013. That
seems pretty likely. In those circumstances, the commitments that were
entered into by the previous Government and acquiesced in by this
Government expose us to making, I think, 13.8% of the payment that we
have made
available.
Leaving
aside the Irish money that has already been committed, and with some
adjustments for exchange rates and so on, that could amount to another
£5 billion to come out of the Exchequer. If that is the case, it
is a serious matter. Therefore, as far as I am concerned, it is
important that I, as Chairman of the European Scrutiny Committee, with
other members of the Committee here present, run through exactly what
has happened and what our concerns are. When I say “our
concerns”, I am speaking for myself, as I am not officially a
member of this Committee. However, I have the opportunity, under the
procedures, to make the point, and I intend to do
so.
During
consideration in Committee of the European Union Bill, on 25 January, I
tabled and argued for an amendment that would insist on us having a
referendum on the dangers of our being involved in bailing out other
member states, specifically with reference to the financial stability
mechanism and other issues. That financial mechanism, which the former
Chancellor signed us up to, was heavily criticised by the European
Scrutiny Committee as legally unsound, and I have already said that I
believe that it is still open to the Government to take such action in
the courts to avoid our continuing to be expected to stump up for this
when there could well be a satisfactory answer. The Minister has said
that he would be glad to let me have the details of the private action,
which would need to be closely scrutinised to see whether the course of
action was appropriate. I have no idea at this juncture whether it
is.
That
agreement was entered into by the former Chancellor and, in effect,
endorsed by the coalition Government. I take the gravest exception to
that, because it will cost us up to £8 billion. The history of
all this, which is an example of how not to conduct government, is as
follows. We are not members of the eurozone and there is no reason why
we should submit in this way, particularly given the presumption of
those in the eurozone, and the attitudes of Mme Lagarde and others,
that they
could run their affairs better. Their sole objective is not the rule of
law, but simply to violate the rules and then say, “Ah, but we
are doing this to save the eurozone.” It is a very strange
attitude, and the sort of thing that really troubles me about how the
European Union
functions.
I
raised the matter with Mr Rompuy, and indeed with Mr Barroso, in
relation to economic government. The hon. Member for Luton North was at
that meeting, and he will remember Mr Rompuy saying, “We
didn’t exactly comply with all the rules and procedures.”
That was a reference to this—exactly the same as Mme
Lagarde’s. The Minister asks who is questioning the legality. We
know from the President of the EU and from Mme Lagarde, to mention but
two, that there are serious problems. Indeed, I would go further and
say that I believe our own Prime Minister has a grave concern about
this as well. He just takes the rather pragmatic view that we are in it
and we had better try to do what we
can.
Kelvin
Hopkins:
I entirely support what the hon. Gentleman is
saying. However, the attitude of, “When it comes to the crunch,
never mind the details, just get on with what you want to do,”
is completely alien to how we do things. We ought to take exception to
that sort of attitude, whoever has it, especially in the European
Union.
Mr
Cash:
It is not just that, although I do not want to
enlarge on my concerns about the manner in which the European Union
functions, although there is an element of pragmatism
involved.
As
I pointed out in a question, the mechanism has an effect that will come
up and hit the outgoing Irish Government—I think the Irish
Parliament has now been dissolved—very hard during the election.
A press release that came out this afternoon suggests what one prime
election issue will be, and we are involved, because we have given
Ireland a proportion of the money under the arrangement. I mean not the
Irish loans legislation, if it has been passed yet, but the moneys
under the EFSM. The centre-right Fine Gael party and the centre-left
Irish Labour party have both said that they want to renegotiate the
deal. Mr Kenny
said:
“I’m
confident that this can and will be
renegotiated”,
and
he gave details, which I do not need to go into. He recognised that
Ireland cannot renegotiate on a bilateral basis. Why? Because although
we have provided the money under what I call an unlawful scheme, it is
now a bone of contention in the Irish Government, and all hell will be
let loose over the next few weeks, as the matter is
debated.
Why
did Mr Cowan, when he was saying that Ireland did not need the money or
a bail-out—Mr Socrates is saying the same in Portugal at the
moment—allow the invaders from the European Commission, the
International Monetary Fund and company to come in under a regulation
that specifically stated that QMV for that purpose arises only at the
moment of final decision and not when the request is made? And the
request was not made, as I said in the House at the time, when
Mr Cowan allowed them in to bully the Irish into the scheme,
exactly as they managed, with a slightly lighter stick, to trap us into
acquiescing in this process, so exposing the British taxpayer in
relation to the £8 billion that I have referred
to.
I am troubled
that such an attitude is part of the Commission’s presumption
that it can run its affairs better and impose its views on us, and that
it will then get it horribly wrong. If I may presume to say so, since
the Maastricht rebellion we have been making such points and have been
demonstrably proved correct—it is a matter of attitude and of
self-government. We should veto any economic governance treaty, or a
treaty of the kind proposed by Mr Fillon. I strongly believe that we
must veto any such treaty, and I have said that to the Prime Minister
and others, but if it is not to be vetoed, at least we should have a
referendum, because we will be dreadfully
exposed.
It
is a profound mistake to imagine that in bailing out scandalously badly
governed countries, which are profligate with their expenditure, we
have any obligation to stabilise them. That is like pouring drink down
the throat of an alcoholic. The very concept of bail-outs was
specifically prohibited under the Lisbon treaty and in all the treaties
since Maastricht—a fact that is conveniently glossed over.
Indeed, Germany was in grave breach of the stability and growth pact,
and the rule of law in Europe now depends on rules of
convenience.
On
the specific question, the pot of €60 billion set up under
article 122 relates to emergency and natural disasters, and the
Minister mentioned related matters. As far as any reasonable person can
see, they have no connection with financial misjudgment and failures of
economic governance—I do not think anybody believes that. It is
now being stated in Government documents that refer to the new
proposal, which will come in after March 2013, that the existing EFSM
will not be needed. What weasel words! It is not that the mechanism is
not needed, but that they know it is blatantly unlawful. It is
incredible that responsible Governments can take such an attitude.
Indeed, unless the mechanism is challenged, it will continue until
March 2013, thereby exposing us to unacceptable exposures of the kind
that I have described and which the hard-pressed British public should
not have to
endure.
I
also mentioned in my questions that the Government pretend—I can
put no other construction on it—that a similar situation arose
with Latvia, Hungary and Romania. That is simply not true. The legal
footing for those arrangements, which I checked out, was article 308 of
the treaty—now article 352—which we debated on the Floor
of the House during consideration of the European Union Bill only a few
days ago, I think on Thursday last week. I am not saying that anyone
listened to the debate—a great pity, perhaps—but I am
saying that use of article 352, or 308, is notorious. It is a
catch-all: if they do not have the power to do something on the face of
it, they somehow or other catch on to some other thing, which will give
them a justification, and then they use that general power under
article 352 to enable them to do something that would otherwise be
unlawful. So, we are back in the same territory, and it is typical of
how the whole operation has been
conducted.
In
the meantime, the chaotic, crisis-ridden European Union is floundering
around to renegotiate even the specifically dedicated eurozone facility
of €440 billion, to which the Minister referred, with talk of
incorporating the Portuguese and Spanish bail-outs. I do not know
whether the Minister is in a position to comment, but a report in the
Financial Times on Monday this week
actually said that they are talking about including a Portuguese
bail-out in the deal, with a smaller group of officials advocating a
flexible line of credit for
Spain.
They
not only have €440 billion that they could have used in the
first place, and have trapped us into a commitment to make those
payments, but now they are talking about extending the bigger zone to
Portugal and Spain, which are part of this particular arrangement. It
is a very tangled tale, and a very unsatisfactory
one.
We
understand that the discussions will be concluded at the end of March,
although there is an opportunity for Britain to put its foot down this
Friday at the European summit. I am interested to know whether the
Minister has any idea as to whether that will be part of the summit
negotiations, because it certainly should
be.
All
that is connected to a vital matter of principle, which is that
economic governance in the French proposals, which I described earlier,
would be endorsed without the need for a referendum, even though it is
shamelessly obvious that they would have an enormous impact on our
country. As I mentioned, that is openly acknowledged by Mme Lagarde,
who went out of her way to declare
enthusiastically:
“We
violated all the rules because we wanted to close ranks and really
rescue the
eurozone”.
She
went
on:
“The
Treaty of Lisbon was very straightforward. No
bailout.”
They
are not the slightest bit interested in subscribing to the
rules.
Mr
Hoban:
Does my hon. Friend accept that the mechanism is a
loan and, therefore, not a
bail-out?
Mr
Cash:
I am prepared to say that it is a loan in those
circumstances, but the consequences of it being drawn down for the
purposes of our commitment as described in the EFSM mean that we are
liable. The liability is the issue. I also believe that it is something
that the Office for National Statistics is more than likely to include
on the country’s balance sheets. We do not know, because it has
yet to decide the matter, but that is a separate
question.
Going
back to Mme
Lagarde—
The
Chair:
Order. I ask the hon. Gentleman to confine his
remarks to the subjects being
debated.
Mr
Cash:
I would not in any way disagree with your ruling, Mr
Williams, but I simply say that Mme Lagarde’s comments refer to
the mechanism. What she says is relevant when she, along with the
former Chancellor, is one of the parties to the agreement, and she
could have taken a different position but did not. However, I will not
pursue
that.
What
I will say is that I have asked for legal advice and for Treasury
advice, which was presumably supplied by Mr Jon Cunliffe, our proposed
ambassador to Europe. I understand—I said this in the debate,
when we were dealing with the question about the Bill now before the
House—that that took place in the middle of a general
election, or just shortly after it. There was a vortex, and there were
people whose minds must have been on many other
things.
One
of the things that troubles me here is the fact that, although for the
purposes of the mechanisms and the procedures accountability lies with
Ministers, in reality, the decisions were almost certainly taken by the
officials. I believe that that is one of the reasons why it is not
possible for me to be given—or they refuse to give me—the
advice that I asked for in the questions relating to the fund. I cannot
get the legal
advice.
I
know that there are certain conventions, but I have been supplied with
legal advice from the Attorney-General in the past, which has been put
in the Library of the House, so it is not an absolute rule. It depends
on the consent of the Minister, and this Minister—I say this
with great respect to him—is not prepared to allow me to have
it. It is his consent that could be given, and he is not going to give
it. Okay, that is the way the rules, on the face of them, apply. The
same does not apply to other advice. It is that other advice, which I
believe came from the Treasury, and perhaps from the Committee of
Permanent Representatives in the European Union, which has brought us
to the position in which we ended up: being committed to this, in what
was an extremely difficult situation, at the time when the mechanism
was being devised, with all the consultation arrangements that I have
already mentioned and all the uncertainties that it has
created.
Our
position basically was that we have had meetings and there was a degree
of consultation. The answer “no” could have been given. I
remember writing a short note to the Chancellor, saying: “Tempus
fugit. You’re going off to a meeting. You must vote against the
proposals and, at the same time, you must also challenge their
legality.” Well, the position is as we find it today, and I am
afraid that the British people are exposed to this very considerable
amount of money for that purpose. Even the explanatory memorandum was
produced only on 15 July, when the present Government were firmly in
power, and it could only be considered, as I indicated in response to
the hon. Member for Nottingham East, on 8 September. We have had to
wait until today, four months later, for a
debate.
I
also refer to the inconsistencies between the remarks of the Prime
Minister on his return from the European Council, on 20 December, and
those of the Minister for Europe. With respect to the Economic
Secretary, he knows what the Minister for Europe has done. I can tell
from the Economic Secretary’s responses that he has been fairly
well briefed on the matter. He knows the track and the route to the
navigation on it, and he knows perfectly well that the Minister for
Europe has indicated, in relation to this specific matter, in a reply
to the European Scrutiny Committee, that the proposals are compatible
with the TFEU. However, we are saying that it is legally unsound. There
is a serious difference of opinion.
We are not a
policy committee, but a Scrutiny Committee, and we have a specific
function to advise the House in respect of matters of legal and
political importance. There is a gulf between the decision that has
been taken by the former Government, the present Government and the
officials, and the European Scrutiny Committee’s assessment of
all this. This is not a light matter, which is why I am taking the
trouble to explain it in some detail.
The Prime
Minister himself, quite rightly, in my opinion, said to me on the Floor
of the House that I had made a good point. He does not often say that,
but he did on this occasion. He may think that I make a good point more
often than not, but he does not always want to say it. However, he knew
that at the root of the matter, there was a real problem, and we are
committed to it, and we should not
be.
Basically,
I believe that we have been deeply influenced by an obsession with the
attitudes of our partners in the coalition Government. I think that has
a lot to do with it. As I put it to the Prime Minister at Prime
Minister’s Question Time on 24 November 2010, we tend to
surrender at every turn and repatriation has been taken off the agenda.
The Irish Parliament has been dissolved and the main issue in the
election is the failure of the Irish Government over all this. I am
afraid that it is typical of how Europe works. No wonder it is a
failure and there are those of us who are determined to sort it out,
have a proper referendum on proper terms and renegotiate the European
Union into an association of democratic nation
states.
5.55
pm
Kelvin
Hopkins:
I will not speak for long. These matters are
serious and need to be aired properly. They are confusing to many
people. We are indebted to the hon. Member for Stone, the Chair of the
Scrutiny Committee, for the enormous amount of work he has done. I am
personally indebted to him for explaining some of these complex issues
on many occasions. The Minister has answered many questions and I am
grateful for his replies, which have also helped to shed some light on
the difficulties.
The Minister
suggested that I would have been wholly supportive of the Labour Europe
Minister when negotiating his deal but he must know me well enough to
know that I would not have been supportive of that. Indeed, I am on the
record as having been very critical of Tony Blair when, at the end of
our presidency, he went to Brussels, ostensibly to negotiate a reform
of the common agricultural policy, yet came back without any reform and
having agreed to a reduction of our rebate. The Economist, not a
magazine of the left, said that it was such a bad deal that no deal
would have been better.
There is an
understanding that we do not trust our Governments, whichever colour
they are, when it comes to matters European. There is a tendency to do
things in Brussels, come back and face the music for a little while and
when it dies away carry on. People say they are in favour of the
European project and therefore anything goes. But that is not good
enough. We want to make sure that Governments are held to account by
this House on these very important matters, especially when billions of
pounds are potentially at risk. I hope that the Minister will
understand that it is right to take him to task on these matters
because of our serious
concerns.
We
talk casually about £8 billion, which is 16 times the amount of
money we spend each year on education maintenance allowances. These are
substantial sums that would be better spent in other ways. I have
argued many times that the euro is not a sensible arrangement, even for
European member states. By having separate currencies, separate
interest rates and separate fiscal policies, countries can manage their
economies sensibly.
We have kept out of the euro and we can manage our economy in a way that
eurozone members cannot. We are not members of that arrangement which
demands a particular interest rate and would tie us into an exchange
rate with other members of the eurozone and other countries elsewhere
in the world. I think we have done a very sensible thing. The greatest
achievement of the previous Prime Minister when he was Chancellor was
to keep us out of the euro. Everyone is immensely grateful for that.
Ministers on both sides have said that there is no possibility that we
will join the euro. If we had been in the euro we would have been like
Ireland but magnified a dozen times. It would have been
appalling.
Mr
Cash:
Will the hon. Gentleman perhaps bear in mind that
the circumstances that led up to the fact that we are not in the euro
had a great deal to do with the rebellion on the Maastricht treaty,
which created circumstances in which it became impossible for the then
Government to do anything other than try to opt
out?
The
Chair:
Order. I think that is straying slightly from the
subject of the
debate.
Kelvin
Hopkins:
Yes indeed, although it is right to have a little
background. When it comes to the eurozone, my argument is that it would
be a sensible approach—I have said it in the Chamber, and I say
it again here—to think seriously about a practical way of
deconstructing the euro, particularly for those countries that clearly
cannot sustain membership, such as Ireland, Greece, Portugal and Spain.
A gradual deconstruction could happen, with individual countries
reconstructed. When the Soviet Union broke up, separate currencies were
created. When Czechoslovakia broke up, separate currencies were
created. When Ireland established the punt, instead of having the
pound, it could flex its currency, which it did. The punt had a
slightly different parity compared with the Irish pound.
Those things
are necessary to manage economies. Economies have to be managed at a
national level, not at a supranational level. We can have international
agreements, as we do, such as the fixed exchange rates of the post-war
era. We did not have no exchange rates but fixed ones that could be
flexed as countries got into difficulty. Indeed, we devalued twice in
that period as a necessary policy. I suggest to the European Union that
someone should be talking or thinking about how practically to
deconstruct the euro, particularly for those countries that cannot
sustain long-term membership. That is what we should be doing, rather
than thinking about how we bail out countries that cannot sustain
membership in the long term. If I was in Greece or Ireland, I would be
arguing for re-establishing their national currencies, devaluing and
starting to regain control of their economies. That is the way forward.
I hope that the Conservative coalition Government will be
saying those things privately, if not publicly, in the European
Council.
6.2
pm
John
Hemming:
There are many important issues behind all this.
Ireland is relatively unusual, because it was fully funded until some
time next year. The reason
that it went off the EFSM was because sovereign interest rates started
going up. It is probably in a position where it can renegotiate,
because it may not have drawn down any of the money. One of the
difficulties when dealing with currencies is that there are different
exchange rates. The first report from the European Scrutiny Committee
uses two different exchange rates—one of €1.16 to the
pound and one of €1.22 to the pound—which adds to the
confusion. It is clear that when the previous Chancellor signed up to
this, he was committing us to a liability, if we use the figures in the
report and forget that the exchange rate varies, of £6.8 billion
or €8.3 billion. The agreement to allow Ireland to draw down
gives us a potential liability of £2.7 billion is there. It is
true that that could increase by £4.1 billion before we move on
to the
ESM.
I
would have thought, however, that the Opposition would welcome this
motion, because what it says is that we take note of the document. It
welcomes the fact that the Government’s position is that the UK
should not underwrite the eurozone. Whatever view one takes on the euro
itself, I do not think that there is a good argument for the UK to
underwrite the eurozone. The Government’s position is one that
all parties should support, which is that if there is a problem in the
eurozone, we are not underwriting it. We may do bilateral loans, and we
may take on an element of risk through being part of the IMF, but we
should not take on additional risk through this process.
It is true
that the funds are not raised from the UK; they are raised by the
European Commission borrowing against the European budget. If we take
Ireland as an example, our liability only exists if it draws down the
funds and, for some reason, it does not pay them back. Many years in
the future, we will probably not be paying 13.8% of the European
budget. We would be paying a different figure—that figure is not
set. At that point, we may be liable. There is a slight risk down the
line, but it is not a very real risk, because Ireland will be able to
pay the money back if it draws it down. I cannot see any validity in
the Opposition opposing this resolution. The resolution is only saying
that we should not underwrite the eurozone. I would have thought that
everybody could agree with
that.
6.5
pm
Mr
Hoban:
Let me start by addressing a couple of points
raised by the hon. Member for Nottingham East. I know that there has
been a change of shadow Chancellor, but I had not realised that the
impact would be so great and so quick. Previously, there was always a
discreet distance between Opposition Front-Bench Members and the hon.
Member for Luton North. Now there is not a cigarette paper’s
worth of difference between them; they appear to be unreconstructed
Keynesians in thinking that the best thing to do is to spend our way
out of the problem.
On growth, the
mechanism is a narrow tool—the hon. Member for Nottingham East
might be surprised to hear that adjective used of it—to deal
with some of the fiscal problems in the EU. The Van Rompuy taskforce
contains a series of measures around growth, and an excessive imbalance
procedure to look at some of the instabilities in economies and how
they should be dealt
with to make sure that European economies grow. A lot of work is being
done on bottlenecks to growth, which is all part of the response to the
economic and financial crisis in which Europe saw itself. The hon.
Member for Nottingham East should see the mechanism as one of a range
of interventions, rather than the only tool to deal with the
crisis.
It is clear
from the discussions at ECOFIN in other circumstances that all member
states recognise that we face two challenges. One is to tackle the
deficit, and the other is to lay the foundation of growth. That applies
as much in the UK as anywhere else. I am not going to mention what we
have done to tackle growth Mr Williams, because you would rule me out
of order. However, there are a series of measures around
that.
This issue
should be looked at in the round, so I will say a little about the
methods. We have been clear about the importance of not joining the
euro. We do not plan to join it in the lifetime of this Parliament, and
we stand by that position. That clearly gives us the flexibility to
adapt our fiscal and economic policy to manage the crisis. As the
Chancellor has said, “I told you so”, however
intellectually justified, is not much of an economic policy. Simply
looking backwards means that we are less likely to move forwards, and
that is a dangerous approach to take in the fast-moving European
environment.
A strong and
stable euro area is important for Britain and British business. Over
40% of UK exports go to the euro area and we know—it has been
repeated ad nauseam—that we export more goods and services to
Ireland than we send to Brazil, Russia, India and China
combined.
It
is clearly in our interests to support the euro area’s
endeavours to put its house in order. However, the Government are also
clear that the euro area must work to stabilise itself, and that is
what the Government have sought to achieve. We want every European
country’s economy, whether in or out of the euro, to be strong
and stable. Crucially, we believe that it is not in our
country’s long-term interests to be permanently liable for
bailing out the
eurozone.
That
is why we supported the creation of the permanent crisis resolution
mechanism, which ensures that the euro area’s responsibilities
are absolutely clear. That has been achieved, and in 2013 the European
stability mechanism will come into effect. It will support euro area
countries and be funded only by them. They are the only countries that
will be required to support the European stability mechanism.
In shaping the
debate on that mechanism, we had clear priorities. First—this is
the point alluded to by my hon. Friend the Member for Stone—we
had to ensure that there was no transfer of powers from the UK to the
EU. We would never have accepted such a transfer. Therefore, the treaty
change applies only to euro area member states. There is no transfer of
power or competence from the UK to Brussels under this treaty
change.
That judgment
will not be for Ministers alone. If, as we expect, the treaty change is
agreed at the European Council in March, it will be ratified in
accordance with the process set out in the Government’s European
Union Bill. Ministers will need to make a statement explaining why the
treaty change does not transfer power or competence from the UK to
Brussels, and Parliament will need to pass primary legislation before
the UK can ratify that change.
The
permanent mechanism puts no obligation—legal or
political—on the UK to contribute to it, either directly or
indirectly via our contributions to the EU budget. Importantly,
although article 122(2) was used on 9 May to create a temporary funding
mechanism, the new permanent ESM should be clearly defined as a
euro-area mechanism and article 122 should not be used again for such a
purpose.
Our
view is that once the permanent mechanism is in place in 2013, the EU
financial stability mechanism that it replaces has to be permanently
extinguished. Therefore we ensured that the recitals—the
preamble—to the current draft decision by Heads of State and
Government at the December European Council stated that
article
122
“will
no longer be
needed”
and
“should not be used” to ensure financial stability for
the euro-area as a whole once the permanent mechanism is in place. Some
would prefer to keep the EFSM on ice so that it can be reactivated in
future. We did not accept that argument, so we secured agreement that
there would be no EFSM mark 2. The existing EFSM, and therefore UK
liability for bailing out the eurozone, will end when the new
arrangements take effect in
2013.
We
are not members of the euro and it is not our responsibility to deal
with all the euro-area’s problems, but the euro-area is our
neighbourhood and it is clearly in the UK’s economic interests
to live in a stable and prosperous neighbourhood. The EFSM was created
at the height of the Greek crisis. Markets were increasingly
questioning the EU’s response to the situation. Indeed, there
were fears for the stability of the entire euro-area, and the risk of
contagion was real and dangerous. European Finance Ministers decided to
create a broader package to restore confidence and stability. ECOFIN
agreed to establish the EFSM and, at the same time, euro-area Finance
Ministers agreed to create the European financial stability facility,
which is backed entirely by euro-area countries and does not create any
liability for the
UK.
Kelvin
Hopkins:
We hear from Members on both sides of the House
about the importance of the eurozone’s survival. The fact is
that we have a massive trade deficit with the euro-area, and we would
really like the eurozone to grow faster. The euro constrains growth. If
the euro-area grew faster, it would buy more of our exports, so we
would have a better trade balance if the euro were
deconstructed.
Mr
Hoban:
I am not going to get into whether the euro can be
deconstructed, but I agree with the hon. Gentleman on one point: it is
better for Britain for the euro-area to grow so that we can trade more
with it. That is one reason why we have a vested interest in the
stability of the euro-area, and that, in part, underpinned our judgment
on extending a bilateral loan to Ireland. It is in our interests for it
grow, which is why we have engaged in things such as the Van Rompuy
taskforce. It is an important feature that wherever we are in the
debate on Europe, we all agree that a growing Europe is a bigger market
for our goods and services, and a better market for jobs and
wealth.
Mr
Cash: The problem with the Minister’s argument is that our
balance of payments for that area between 1999 and 2009 was
minus-£5 billion overall, whereas we are plus-£11 billion
for the rest of the world. The
difficulty is that we are seeking to grow out of a declining, low-growth
system that is incapable due to the rules applied and the manner in
which it operates.
Mr
Hoban:
I am in danger of being dragged by my hon. Friend
down a route that you will not permit me to travel, Mr Williams.
However, I can say that one of our objectives in negotiations—I
see this particularly in discussions about financial
regulation—is to ensure that regulations are designed to help
Europe grow, not to condemn it to low growth rates.
I shall move
on to the process. The EFSM was created in exceptionally turbulent
conditions before the Government took office. Cabinet Office protocol
was followed during its creation, and the EFSM was agreed at ECOFIN by
qualified majority voting. There was consensus between the parties
about the process, but not necessarily about the outcome. It was a
matter for the previous Chancellor to decide—he was the man
occupying the office at the
time.
My
hon. Friend the Member for Stone and the hon. Member for Luton North
have articulated concerns about the use of article 122. The EFSM was
created following agreement by a qualified majority of member states at
the ECOFIN meeting on 9 May 2010. The terms of the mechanism are set
out in EU Council regulation 407/2010, and it is compatible with the
treaty on the functioning of the European Union, article
122(2) of which
states:
“Where
a Member State is in difficulties or is seriously threatened with
severe difficulties caused by natural disasters or exceptional
occurrences beyond its control, the Council, acting by a qualified
majority on a proposal from the Commission, may grant, under certain
conditions, Community financial assistance to the Member State
concerned.”
The
Council decided that, in these circumstances, those criteria
applied.
The
agreement we have reached on the ESM ensures that article 122 will
never again be used for that purpose. As the Prime Minister said, we
have a good “belt and braces” approach—a no need,
no use approach. The use of article 122 ever again is ruled out in such
circumstances. In the ESM, we have secured a stabilisation mechanism
that better meets the needs of the euro-area and the UK, but until the
ESM comes into force—in 2013 at the very latest—we still
have to deal with the previous Government’s legacy: the
EFSM.
I
regret that, and I regret that the need to create and announce a
mechanism quickly meant that we were forced to override parliamentary
scrutiny in the case of the EFSM. The Government take the opinion of
the European Scrutiny Committee very seriously, but these were
exceptional circumstances. In those two or three months, Treasury
Ministers were signing one explanatory memorandum a day to send to the
European Scrutiny Committee, such was the flow of European regulation
across the
desks.
Notwithstanding
those very important issues, the EFSM has provided rapid and practical
support to member states that badly needed it, and it has been a
considerable factor in obtaining economic stability. It is worth
remembering that the EFSM is funded by borrowing from capital markets,
and it is only in the event that a beneficiary member state defaults
that the EU budget, and so the UK, will be called upon. This is not a
liability for the UK; it is a contingent liability.
Looking ahead
to the ESM, we have a mechanism that will fulfil that function more
effectively. Euro-area states will contribute to addressing euro-area
problems. The UK should be—and is—a good neighbour to the
euro-area, but we are not in the euro, and that is how things should
remain.
Question
put and agreed
to.
Resolved,
That
the Committee takes note of European Union Document No. 9606/10,
relating to a Council Regulation establishing a European financial
stabilisation mechanism, and European Union
Document No. 12119/10, relating to a draft amending budget
No. 7 to the General Budget 2010—Statement of
expenditure by Section—Section III—Commission; supports
the Government's view that whilst it is in the interests of all Member
States to support a stable and fully functioning euro area, financial
assistance for euro area Member States should primarily be provided by
other euro area Member States; and supports the Government's position
that the United Kingdom should not be required to contribute to the
European Stability Mechanism that will permanently replace both the
European Financial Stability Mechanism and the European Financial
Stability
Facility.
6.17
pm
Committee
rose.