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The fact that the Prime Minister is leading a divided party while negotiating on Europe is very much weakening his hand. By facing two ways, the Prime Minister’s position and the negotiating position of our Government are both confused and confusing. It is no wonder that our European partners are not entirely sure where the Prime Minister stands. It is clearly not in our national interest to have that weak voice and to stand on the sidelines. Splendid isolation is really not that splendid. The fact that we are in the slow lane of a two-speed Europe might chime well to the Eurosceptic ear, but, essentially, it could mean that other member states will take decisions that affect us without our being at the table.

I say to the hon. Member for Bury North (Mr Nuttall) that it is wrong to assume that eurozone members all agree on which direction they want to take regarding better economic co-ordination, because the French Gaullois tradition is an intergovernmental one that is very hostile and suspicious of supranational institutions. There are disagreements within the eurozone countries. We should not just assume that France and Germany agree on these issues.

If the eurozone crisis continues to deepen, it will have serious implications for jobs, businesses and banks in the UK. Our economy is closely entwined with the other 26 members of the European Union, and more than half our trade goes to those countries. Our banks are also extensively linked and exposed to eurozone banks, so it is clearly in the national interest for a solution to be found at the summit. Labour Members want the Government to push for a greater and more decisive role for the European Central Bank and a credible crisis fund with, of course, built-in conditionality. The so-called six-pack package goes a long way to creating credible rules and procedures to enforce those rules, but it is clear that a solution must also be found to tackle the balance of payments and trade imbalances, which several hon. Members have mentioned, between the different eurozone member states. It is also very important to enhance the competitiveness of the weaker economies.

In winding up, I would like quickly to ask the Minister a couple of questions. Why did the Prime Minister promise repatriation of powers six weeks ago and then suddenly drop those demands yesterday? What resources in the Foreign and Commonwealth Office were given to working through options on repatriation, or was that always a matter of rhetoric rather than something really considered in the corridors of King Charles street? Why have the Government been so complacent about the emergence of a two-speed or multi-speed Europe, and what specific reassurances are the Government asking for with regard to the City and the single market? Are the Government seeking, for example, an emergency brake to be extended to the area of financial services? Finally, are the Government hopeful of a fairly rapid treaty change, and what are the risks to the UK and the rest of the EU of a prolonged process of treaty change and ratification?

In conclusion, we want to see the eurozone succeed, because it is clearly in the national interest that a solution is reached. It is not in the national interest to engage in “I told you so” arguments or schadenfreude, nor is it in the national interest for the governing party and the coalition to be so divided on this issue.

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Our European partners are left scratching their heads about what the Government’s position really is. The Prime Minister should never have promised repatriation of powers, if it was never his intention to deliver on that promise. His promise has entrenched and deepened divisions in his party, as we saw today and yesterday at Prime Minister’s questions.

That is no way to negotiate with our European partners. Our country demands and deserves better leadership, and only then will the Government be in a position to effectively pursue the national interest and start being part of the solution rather than part of the problem. Division, isolation and weakness are, in fact, a betrayal of the national interest. My concern is that the Prime Minister will not be able to deliver on even the modest demands that he has set out because of his isolation.

5.24 pm

The Minister for Europe (Mr David Lidington): I congratulate my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) on securing the debate. While the debate was going on, I was thinking that he and I have known each other for more than 30 years. Although it is fair to say that we have not always managed to agree on political subjects, I have never had any doubt whatsoever about his integrity or his patriotism. I pay tribute to him for the way he put his case today.

We are, indeed, in the rather unusual position of debating a meeting that is about to start and that, to judge from what President Van Rompuy said on Monday, may well go on for many hours after dinner tonight and into tomorrow morning. I therefore need to preface anything I say with the caveat that events may overtake us. I will also be quite straight with hon. Members and disappoint the hon. Member for Wolverhampton North East (Emma Reynolds) by saying that I am not going to go into detail about the Prime Minister’s negotiating position. The only people who would benefit—indeed, who would be delighted—by a full disclosure of the Prime Minister’s negotiating tactics would be the Governments of other countries represented around the table, who might not necessarily share identical negotiating objectives.

I want to try to respond at least to the broad questions raised during this debate. I certainly agree with everybody who has said that the British Government have a duty to be vigilant and to defend vigorously the national interests of the British people. As the Prime Minister made very clear yesterday, we will support the objective of securing fiscal discipline in the eurozone, but not at the expense of either our industries or our independence. The crisis in the eurozone is forcing the European Union and the eurozone 17 in particular to confront fundamental choices. It matters hugely to the United Kingdom that the eurozone is successful in sorting out its problems.

One point on which I agreed with the hon. Member for Wolverhampton North East was the interconnection between this country’s economy and the economies around the wider Europe. Many of the statistics are well known. The eurozone accounts for roughly 40% of United Kingdom trade, and its stability matters globally. Around 15% of United States trade is with the eurozone

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and one can measure the concern of the United States Government by the fact that the Treasury Secretary, Mr Geithner, was dispatched on rapid visits to Paris and Berlin earlier this week.

The hon. Member for Luton North (Kelvin Hopkins) talked about wanting an orderly deconstruction of the eurozone, which was far too sanguine. He slightly skated over the fact that in every conversation I have had with Ministers of any of the 17 Governments of the eurozone, they have said that they are committed to keeping the eurozone project going. In addition, as far as one can tell from opinion research, the populations of those countries still consider the euro to be an essential part of the national interest of their country. Hon. Members may think that those views are misplaced, but they are the views of the countries that have chosen to join the euro, and, ultimately, we have to respect their sovereign decision.

What I am clear about is that the instability in the eurozone is already having what the Chancellor has described as a “chilling effect” on the United Kingdom’s economy, and a collapse of the eurozone or a prolonged recession in the eurozone as a result of financial instability persisting will be thoroughly bad news for jobs and for hopes of economic growth in our country. It is not only important but urgent to try to sort out the problems of the eurozone. As a number of hon. Members have said, many of us argued from the start that there were flaws in the way that the euro had been designed and that it seemed illogical to have a currency union and a single monetary policy and interest rate without some common agreements and structures in place to govern wider economic and, in particular, fiscal policy.

We can argue that those problems should have been tackled at the start and that the warning signals should have been read when countries breached the stability and growth pact and no action was taken, but we are where we are. I certainly believe that there is a sense of real urgency and of peril among serious-minded leaders of other eurozone countries. They are now speaking in terms of an economic catastrophe that will spread much more widely than the single currency area if this instability is not resolved, and resolved swiftly.

Mr Baron: My right hon. Friend is of course right. In the history of the world, there has not been a monetary union that has worked that has not also had to include fiscal union. It is fundamentally flawed. What is more important now is not history but the future. I suggest to my right hon. Friend that perhaps the one reason eurozone leaders are so passionate about the euro is that it is part of a political project for political union, and that they are therefore overegging the economic consequences. Where history can also help us is to remind us that since 1945, as I have highlighted—there has been no riposte from the Minister on this point—we have had 80 instances in which countries have left currency unions. The vast majority have benefited in growth terms from having left a currency union. I suggest to the Minister that he should think carefully. Perhaps the motive of these eurozone leaders is that they see the euro as a weapon that is crucial to political union.

Mr Lidington: My hon. Friend makes a perfectly sensible point about the fact that other countries have departed currency unions since the second world war.

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It is fair to say that we have not had such a break-up of a currency union on this kind of scale, with economies that are so closely integrated, and in an age when information and capital can be moved rapidly, not just in national jurisdictions but globally, at the click of a computer mouse. Studies that I have seen say that it would be much, much more damaging and risky for the eurozone to break up, particularly if it broke up chaotically, than it was for some of those other currency separations, such as those of the Czech Republic and Slovakia. Incidentally, Slovakia, having broken with the Czech Republic, then decided to enter the eurozone and has engaged in some challenging austerity and competitiveness measures in order to try to make a success of that commitment.

Where I would agree with my hon. Friend is that this has been seen, by those who took part, as a political project as well as an economic project. However, to an extent that we sometimes do not appreciate in this country, those political ambitions have a much greater resonance among the wider electorates in many countries on the continent of Europe than they do here. That is due to all kinds of historical reasons with which we are fairly familiar. I want to emphasise that the prime objective of the summit ought to be to sort out the issues that remain unresolved from the eurozone meetings of 21 July and 26 October. Whether we talk about the European financial stability facility, bank recapitalisation or the detail of the Greek write-down, there is detail that has yet to be finalised, and that needs to be addressed rapidly. So, too, does the need for competitiveness, not only in the peripheral eurozone economies but in the global context of the European Union as a whole. It needs to be embraced as a priority by every single one of the member states and the European institutions. If I have time, I will come on to that. There is some evidence that that challenge is starting to be recognised and addressed.

I accept too—I will make this point very briefly—that if eurozone countries choose to push forward with greater economic integration, there will be a democratic challenge as well. How are economic policies to be made democratically accountable? I accept that that is a challenge for those countries. It is clearly for them, as independent sovereign countries, to decide how they individually address that.

Many hon. Members raised the issue of possible treaty change, and the safeguards that the United Kingdom would require should the eurozone follow that path. Let me set out the options in broad terms. One way to introduce stronger rules for the eurozone, which of course would not apply to the UK, would be a change in the treaty governing all 27 members of the European Union. That would be the most comprehensive way to provide tough sanctions to ensure that eurozone countries stick to their own rules on debt. A second option would be to allow the 17 countries of the eurozone to create a separate intergovernmental treaty of their own. That has happened before, with the Schengen agreement on open borders and with the European stability mechanism. The 17 are free to do that again. The likelihood, however, is that the signatories to such a treaty would want to draw on the EU institutions that belong to all 27 member states to monitor and enforce compliance with any new rules on tighter budget discipline. In both instances, we would have the power of veto. Treaty change at 27 requires

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unanimity and, while the content of an intergovernmental treaty at 17 is a matter for the 17 signatories, it cannot cut across the provisions of the existing EU treaties, nor can it seek to use the EU institutions without the specific agreement of all the EU 27.

Mr Cash: My right hon. Friend, I am sure, recognises the extreme danger of creating a treaty within a treaty. I am sure he realises that that would be a house divided against itself, and catastrophic for our democratic system.

Mr Lidington: As I said earlier, this is not without precedent. I am not saying that this will happen, but it is an option that has been floated quite openly by a number of European leaders as a possible way forward. Just as there is a negotiation within the eurozone about the measures and mechanisms to enforce discipline, so there is a negotiation with us and fellow non-euro countries. In the course of these negotiations, whichever option is followed we will make sure that our interests are protected. Of course, there is another option, which is to use the existing frameworks and treaties. That option is still on the table.

In the debate, there has been extensive discussion of the repatriation of powers and a referendum. We need to remind ourselves that this is the first Government in British history to have introduced a legislative guarantee of a referendum. The European Union Act 2011 ensures that there is now a legal requirement on any Government to hold a referendum before any agreement on treaty change that transfers competence or powers from the UK to the EU. I have never pretended that the Act is a panacea. It does not address the issue of repatriation of powers and that was not its purpose. It is a guarantee.

There has been some suggestion from hon. Members that the UK should hold a referendum on any changes the eurozone countries may choose to make. I want to reiterate the point the Prime Minister has made on this issue. What the eurozone countries may or may not do is have arrangements between themselves that pool some of their sovereignty. To say that we have to have a referendum in Britain about something that other countries are going ahead with anyway would not only be a rather odd approach for us to take, but it would probably mean that those countries would choose to go ahead in any case but using purely intergovernmental means, however messy and unsatisfactory from their point of view such an alternative might be. That may well yet happen, but holding a referendum on such a treaty would not bring back a single power.

Personally, I could draw up a list of powers—we had the list in the Conservative manifesto at the previous election—that I think are better decided nationally than by the EU. However, we have to be ruthlessly focused on what is most important to our national interest and, at this time, in particular to our national economy. That is why our priority in the negotiations is safeguards to keep the single market fair and open for our most crucial industries, including financial services, to which my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) made reference.

Kate Hoey: Is the right hon. Gentleman saying that none of the options that he has mentioned and that might happen is making any real change to our relationship

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with the European Union? Surely the changes are fundamental and require the will and support of the British people in a referendum.

Mr Lidington: No. We do not know the shape, let alone the detail, of any agreement that might be reached over the next 24 hours or longer. The risk alluded to by a number of my hon. Friends, which perhaps lies behind the hon. Lady’s intervention, is that of caucusing. The risk is that the greater economic integration of the 17, and of more countries over time as other member states join the euro, as is still their intention, will lead to caucusing on single market measures, so that the UK would in effect be presented with a “take it or leave it” option. That is certainly a theoretical risk and I do not want to pretend otherwise. The political reality, however, is, first, that that is not how the eurozone countries have operated up till now. We were given similar warnings when the United Kingdom took the decision to stay outside the euro when it was created, but those dire warnings have not been justified by the events of the years since.

Secondly, when I talk to Ministers from the other 26 member states, I find that neither the eurozone 17 nor the euro-out 10 are cohesive or monolithic blocs. Talking to Dutch, German—in particular—Finnish, Austrian or Irish Ministers, one finds that they all very much want the United Kingdom, with its championship of free and open markets and an outward-looking European Union, to be centrally involved in taking decisions. There is not that drive towards a caucus that a number of my hon. Friends fear.

Mark Reckless: Will the Minister give way?

Mr Lidington: I will not, I am sorry. I want to leave some time to my hon. Friend the Member for Harwich and North Essex, so I must conclude my remarks shortly.

I will write to those hon. Friends who have mentioned particular subjects, such as my hon. Friend the Member for Cheltenham (Martin Horwood) who spoke about energy. I assure my hon. Friend the Member for South Northamptonshire that we completely recognise the importance of financial services. A thriving City of London is an asset not only to the United Kingdom but to the European Union as a whole. We should go out and sell that case loudly and confidently. We have made it clear that, if a financial transactions tax introduced at

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EU level were to cost jobs and growth—that is on the basis of the Commission’s own impact assessment—we would veto it. If others wanted to go ahead, foolishly, on the basis of an enhanced co-operation measure, that would be a matter for them.

It is clear that the next few days will be important for Europe. We head into the summit with a clear objective. Yes, we support the eurozone in sorting out its problems, but we will not sign up to fiscal discipline in the eurozone without safeguards and certainly not at the expense of our industries or our independence.

5.43 pm

Mr Jenkin: I am most grateful, Mrs Main, for the opportunity to make a few remarks in the last couple of minutes available. My right hon. Friend the Minister for Europe is extremely generous, as always, in letting me reciprocate. No one doubts the sincerity of his commitment to doing the right thing for his country as well as for the party and the coalition. I also thank my right hon. Friend the Member for New Forest West (Mr Swayne), who has patiently sat through the debate on behalf of the Prime Minister, whose gesture we appreciate.

May I be brutally frank? I hear the Government still in denial about the significance of what will happen. We will have a treaty of the 27 that will create a massive shift in the focus of power to the 17. The EU institutions will be concentrating on that and we will become peripheral, so we need a fundamental change in our relationship with the European Union to compensate for that change, not least because our existing terms of membership are already very damaging to this country’s competitiveness, growth and job creation. At the summit, the United Kingdom should seek an agreement in principle—so that it does not hold the summit up—that renegotiation has to be on the table. If the Government cannot even obtain that at such a moment, they are not building a position from which to negotiate in future.

As for a referendum guarantee that does not actually guarantee a referendum, I have made my point about that Act of Parliament: it is not sufficient because it does not address our circumstances. The treaty change is without doubt significant and, if the Government want the British people to consent to it, they must inevitably concede a referendum or it will never be ratified.

5.45 pm

Sitting adjourned without Question put (Standing Order No. 10(11)).