“Scotland’s 5 million people, having been members of the EU for 40 years, have acquired rights as European citizens; for practical and political reasons, they could not—”

Mr Deputy Speaker (Mr Lindsay Hoyle): Order. The hon. Gentleman knows as well as I do that passing reference is one thing, but we will end up in a major debate. He is not where he was when he began speaking on this subject. There was much that was great in his history of Croatia, but I do not need to hear the history of Scotland.

Angus Robertson: I am grateful, Mr Deputy Speaker. [Interruption.] If I can respond to Mr Deputy Speaker and say that I was pleased to be able to discuss the different ways in which nations plan to accede to the EU. It is a simple statement of fact that there is a different position for those within the EU and those who are outside it.

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Wayne David: Has the hon. Gentleman received the legal advice that the Scottish First Minister has clearly not received?

Angus Robertson rose—

Wayne David: Was the hon. Gentleman listening to what I said?

Angus Robertson: I have. I am delighted—

Mr Deputy Speaker Order. Two Members cannot be on their feet at the same time. We will end up with three of us on our feet.

Angus Robertson: If the intervention by the hon. Member for Caerphilly (Wayne David) is in order, Mr Deputy Speaker—[Interruption.] It is not in order, in which case I am disappointed that I will not be able to complete the answer as I would wish.

Michael Connarty: Having read the opinion—it has been given in writing, I think, to the Select Committee on Foreign Affairs—on the question of Scotland’s accession, has the hon. Gentleman read the other 13 submissions that contradict Mr Avery and do not take the same position, to say—

Mr Deputy Speaker: Order. I know that Mr Robertson wants to get back on to the subject, and that no hon. Member wants to distract him. He is not a man who is easily distracted.

Angus Robertson: You are very kind, Mr Deputy Speaker. I am disappointed that the hon. Members for Linlithgow and East Falkirk and for Caerphilly (Wayne David) have been ruled out of order when trying to mention Scotland in the way that they did. However, they had an opportunity to take part in the Westminster Hall debate earlier this afternoon. Unfortunately, they were not able—

Mr Deputy Speaker: Order. I have been very generous, but I am not going to be as generous now. I am sure that the hon. Gentleman wants to contribute a lot more to the debate, and we do not want to open up a debate about Westminster Hall. That is something that we are not going to do.

Angus Robertson: I shall conclude, Mr Deputy Speaker, by saying that I think that a nation of nearly 5 million— Croatia—joining the EU in 2013 is a good thing. It is good for the citizens of Croatia, and it is good for citizens in the rest of the European Union. We need to reflect on unresolved issues. Trafficking is a very serious matter, and there is a long track record in the European Scrutiny Committee of Members who care deeply about it. I commend the non-governmental organisation that the hon. Member for Linlithgow and East Falkirk cited. We need to obtain assurances on those issues. It is important not only for the citizens of Croatia and the rest of the European Union but for those people who may be trafficked in future through any EU member state, which is why I again appeal to the Minister to take the opportunity to clarify the fact that the safeguards are of the highest standards and that we can have confidence in them.

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We can look forward to Croatia’s membership. I reflect that I have not heard a single intervention today to suggest that it is a bad thing for this nation of 5 million people to take its seat at the top table in agreement with the Croatian Government. It is a gain in sovereignty for it to be able to take part directly in the EU, not just in the Council of Ministers, but with 12 MEPs in the European Parliament and a commissioner playing an important role. That bodes well for Croatia and for the western Balkans, leading to greater confidence in peace and stability in the region. We should send a strong message to other nations, whether Bosnia and Herzegovina, Serbia or others, that the door remains open to them. We are in favour of further enlargement. Beyond the issue of Croatia, reflecting on the fact that the Irish protocol is something that the Irish Government and people thought was important, Europe has listened. The protocol and the assurances within it—

Gemma Doyle (West Dunbartonshire) (Lab/Co-op) rose

Angus Robertson: This is my peroration. The protocol and the assurances relating to tax-varying powers are welcome, and for that reason, my right hon. and hon. Friends will support the measure as it proceeds through Parliament.

4.4 pm

Mr William Bain (Glasgow North East) (Lab): It is always a pleasure to follow the hon. Member for Moray (Angus Robertson). I am sure that throughout the debate we will have a few flashpoints over our differences in interpretation of the treaties, and the lessons of the Bill.

It is a testament to how far Croatia has progressed in the past nine years since it first applied for EU membership that we are being asked to approve the Bill that will ratify its likely accession to the EU as the 28th member state on 1 July 2013. Whereas 20 years ago it was recovering from the aftermath of the conflict with Serbia, the siege of Dubrovnik and the break-up of Yugoslavia, Croatia now has exciting plans to diversify its economy and invest in energy and tourism, and is cutting its deficit to under 4% of GDP, albeit in a period of somewhat patchy economic growth.

Although members of the European Scrutiny Committee are right to point to the further progress that needs to be made on judicial reform, the elimination of corruption in state-owned companies and the detection of crime, and that more must be done to bring suspected remaining war criminals to justice, it is also fitting that we now ratify the accession treaty signed on 9 December 2011, following 18 other EU member states that have done so, or have voted to do so, since February.

In January, some two thirds of those voting in Croatia’s referendum supported its accession to the EU as a means of embedding the rule of law and democratic values, and as a route to prosperity. There are, as hon. Members have mentioned, still some outstanding issues in connection with the ratification of the accession treaty by Slovenia, which has indicated that an agreement with Croatia over debts arising from the collapse of Ljubljanska banka in the 1990s still has to be reached.

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Croatia proceeded through the 35 chapters of accession in the period of just more than five years, prior to the Commission’s making a favourable recommendation on its membership status. The political criteria required Croatia to ensure the stability of institutions guaranteeing democracy, the rule of law, human rights and respect for, and protection of, minorities. The economic criteria require the existence of a functioning market economy, as well as the capacity to cope with competitive pressure and market forces within the EU.

The acquis criterion refers to the ability to take on the obligations of membership arising from the treaties and the Union’s legislation—the acquis—including adherence to the aims of political, economic and monetary union, which would mean in due course Croatia adopting the euro as its currency, as under article 5 of the accession treaty it has no opt-out from participation in economic and monetary union. Indeed, no other accession state has had an opt-out, and no newly acceding or re-acceding member state would be likely to have one in future either.

The Commission’s monitoring report from last month found real progress being made on many fronts, although further attention had to be paid to the protection rights for LGBT people, the selection of new judges and prosecutors, and rooting out corruption in public procurement. On asylum and immigration policy, Croatia shows a good level of compatibility with the EU acquis, although further progress is required on visa requirements. As a new member state that will have to sign up in due course to the Schengen acquis, further work before entry to the Union will be required with regard to the free transit agreement with Bosnia and Herzegovina.

It is interesting to note that the record for the shortest period from application to accession in the history of the EU was Slovakia, which completed all stages within two and a half years. Croatia’s accession process, which has taken five years, compares relatively favourably with that. Of course, the example of Slovakia’s accession is a cautionary tale for all states intending to accede or re-accede that believe the process to be a mere formality. As we know from remarks by the Commission, the President of the EU Council and the FCO, that would not be the case for any state seeking accession or re-accession.

Croatia had to make speedy progress in several areas of the accession process, demonstrating the standard that the EU expects of new aspirant member states or—dare I say it?—parts of member states that decide to separate and form new entities that might seek entry to the EU. This debate is instructive, therefore, not only because of what Croatia had to do to satisfy the entry criteria or what other aspirant states, such as Serbia or Turkey, might have to do in the future, but in terms of what Scotland might have to do to become a member state if it votes for separation in 2014.

The first area where Croatia had to make significant reforms was in relation to the creation of an independent central bank. The EU Council issued a draft common position on the progress of the access negotiations with Croatia in 2009 in which it commented extensively on the advances made in the administrative capacities and remit of Croatia’s central bank, the HNB. It noted that during the financial crisis of 2008 the bank adopted prudential measures regarding reserve requirements and foreign currency liquidity requirements. In particular, it

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reduced the reserve requirements from 17% to 14%, decreased the foreign currency liquidity ratio from 28.5% to 20% and raised banks’ maximum allowed open foreign exchange positions. The HNB has been designated by the Council as the component supervisory authority for electronic money institutions—a vital step in ensuring financial stability, which is a prerequisite of EU entry.

The Council also accorded significant importance to the capacity of the central bank in its foreign currency liquidity requirements. Croatia has implemented regulations aligning it with the EU acquis on the new capital framework, the supervision of electronic money institutions, the winding up and reorganisation of credit institutions, the supplementary supervision of financial conglomerates and deposit guarantee schemes, and the enforcement of prudential requirements. Croatia required all this financial infrastructure before the Commission recommended that it be accepted for entry.

Let us apply the example of Croatia to the debate on other potential aspirant countries seeking accession or re-accession. Such a state, if it did not have its own central bank, would have to rely on another sovereign country’s central bank in order to harden or relax financial rules and requirements.

Mr Deputy Speaker (Mr Lindsay Hoyle): Order. We are drifting. I have pulled up other Members for doing the same. We need to stick to the subject in hand, rather than turning to other areas of accession.

Mr Bain: It does not follow from the EU’s deliberations with Croatia that Croatia’s offering another state’s central bank would have been acceptable to the EU in order to obtain the Commission’s recommendation for approval. That has intriguing lessons for future accessions and re-accessions. That is the implication of the Bill.

Croatia, through the State Agency for Deposit Insurance and Bank Rehabilitation, can guarantee bank deposits. It made significant improvements to this scheme in anticipation of complying with EU directive 94/19/EC, which specifies that all member states must have in place a safety net for bank depositors. It cannot be a criterion, then, for future accession or re-accession countries to fail to have a system to protect bank deposits. That is the implication that comes from Croatia’s accession process and which is reflected in the Bill.

The obvious question arises—the FCO mentioned this in a statement on Thursday—of how, if part of the EU were put into limbo, it could possibly meet the terms of such an EU directive, having no independent central bank, no machinery to guarantee bank deposits and having to rely on the central bank of another state to guarantee bank deposits. Those are all implications that come from Croatia’s accession process.

The lessons of the negotiations for any new aspirant state highlight the following issues: does it have its own financial services regulator or would it seek to continue with the current regulatory framework, which would be conducted by another state? What would be the governance arrangements for any financial services regulator? What degree of independence from Government would that have? What institution would be prepared to stand behind financial services firms with large deposits or policy holder liabilities? Indeed, how would it be possible to provide lender of last resort facilities without assuming regulatory control over financial transactions such as

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mortgages, insurance and even pensions? All these are issues that arise out of the Bill and the accession process that Croatia went through.

Finally, a framework to wind up failing or failed banks is required. In Croatia’s case, in chapter 9 of the 2009 common position document, the EU welcomed the alignment of Croatia’s legislation to the EU acquis with regard to bank accounts, branch accounts and the re-organisation and winding up of banks. In addition, the European Bank for Reconstruction and Development, in its 2010 to 2013 strategy for Croatia, considered the securities market regulator highly effective in pursuing complex cases. All those steps were essential in showing compliance with the EU acquis in order for Croatia’s application for membership to be accepted.

With reference to the rights of EU citizenship being conferred on Croatians joining the EU, it is appropriate that the Bill permits a phasing in of the right to work. The Minister was right to say that the UK should make use of the flexibility that allows up to seven years before full free movement rights will apply to Croatian nationals in the UK, as was the case with the accession of Bulgaria and Romania to the EU earlier.

The Opposition support future enlargement on the proper criteria. We note the applications made by Serbia, Montenegro and Turkey. Serbia was granted candidate status on 1 March this year, but has been advised by the EU that it can commence formal accession negotiations only if progress is made on the status of Kosovo and its future relations with Kosovo.

The Bill is important for Croatia’s relations with the rest of the EU and the outside world. In demonstrating that a country engaged in a bloody conflict two decades ago can emerge and be in a position to join the EU now, it shows the powerful benefits of full membership of the EU—benefits that go far beyond being a member of the European Free Trade Association. Simply being a member of that institution could render a country liable to be a net contributor to the EU budget but without any influence over how it is spent, and to be bound by the rules of the single market but with no ability to shape those rules. It was interesting that we had some figures this morning from the recent past of Scottish politics advising that a separate Scottish state should, instead of seeking EU membership, seek membership of EFTA instead—

Angus Robertson: On a point of order, Mr Deputy Speaker. Would I be right in remembering your ruling to Members of the House that the debate should be about Croatia, not Scotland?

Mr Deputy Speaker (Mr Lindsay Hoyle): That is not a point of order, but the hon. Gentleman is absolutely correct. I have mentioned to Mr Bain that I need him to come to order on Croatia. I am sure he will do that, in the same way as other Members did who drifted when we pulled them back into order. That is where Mr Bain is now going.

Mr Bain: Indeed, that demonstrates Croatia’s wise decision to join the EU proper rather than seeking membership only of the European Free Trade Association, given the clear advantages that will accrue to its people when it becomes a full EU member state.

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Furthermore, the Bill demonstrates precisely what states must do and the entry criteria with which they must comply before becoming members of the EU. I congratulate the people of Croatia on the progress they have made and welcome their entry next year. However, I also believe that it demonstrates the value of membership of the United Kingdom, the votes we have as a member of the EU Council and the ability to influence key decisions. That is a real benefit, and one that I and Opposition Members would not wish to see Scotland lose in coming years.

4.20 pm

Gemma Doyle (West Dunbartonshire) (Lab/Co-op): I am grateful for the opportunity to contribute briefly to the debate—possibly more briefly than I had anticipated, given your recent ruling, Mr Deputy Speaker. Debates on the EU in this House often focus on our membership, and rightly so, but I think that it is important that, as the UK is a member state, we also engage with the wider issues, so I am pleased that we are debating Croatia’s accession.

As my hon. Friend the shadow Europe Minister and other Members have said, we support Croatian accession and EU enlargement more widely, provided that the proper criteria are met. With every new country that joins, the single market is widened and new markets are opened up for our exports. That can only be good for business across the UK and for our economy as a whole. However, it is very important that we ensure that candidate countries are ready to join before accession. Although Bulgaria and Romania were granted conditional accession, that turned out perhaps not to be a good model, and I think it is right that it was not repeated in Croatia’s case.

Given Croatia’s difficult not-too-distant history, and that of the wider Balkans region, I am particularly pleased that we are debating such progress and such a positive step. The EU has developed and progressed significantly since its relatively modest beginnings after the second world war, and Croatia’s accession reminds us of the power of the EU in moving on from conflict and as a mechanism for countries working together for positive aims. As we have heard, Croatia will be the second state from the former Yugoslavia to join the EU, and I very much hope that others will make progress towards membership.

Over the past 10 years or so, I have visited Croatia and other Balkan countries a number of times, sometimes on holiday and sometimes as part of a visiting group of political representatives, both as a Member of Parliament and before I was elected. I continue to be interested in the region, its progress and the challenges it faces. Earlier this year I joined other hon. Members from both sides of the House on a visit to Bosnia. Although she is not present, I want to thank the hon. Member for Redditch (Karen Lumley) and her office for arranging what was a very informative trip, and also for her good company.

I had previously visited Bosnia about 10 years ago, and at the time I was struck by the sense of optimism and hope for the future. I must say that I encountered quite a different and much less optimistic mood when I visited this year. I came home with renewed interest in

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what is happening in that country and a deep sense that we need to pay much more attention to Bosnia’s situation. At times, the situation in that country has seemed intractable, and I fear that it might get harder to resolve. I hope that we can support other countries in the region to move forward alongside Croatia.

Hon. Members will be aware that this has not been an easy process for Croatia. From the creation of its Ministry of European Integration in 1998 and the submission of its formal application for membership in 2003, it appears, hopefully, that the people of Croatia will finally be granted EU membership by July 2013, ending a 15-year journey. However, there is still work to be done by the Croatian Government to ensure that they are ready to finalise accession, most notably in relation to security of the new EU border that they will control.

I have crossed the border from Slovenia into Croatia; the Minister mentioned the border crossing, which is where the narrow strip of Bosnia juts into Croatia. I have also crossed from Croatia into Montenegro. I thought I might end up spending longer than I wanted at that crossing; as we approached from Dubrovnik, my now husband stalled the car and we went kangarooing into the checkpoint with rather a lot of noise and commotion—not really what people want to do as they approach a border checkpoint. For whatever reason, however, the officers simply checked our passports and waved us through; I assume that they thought that no one who was up to no good would make such a dramatic entrance.

Notwithstanding the border issue, membership of the EU will make a real difference to Croatians, enshrining basic rights and principles, opening up Europe to them and signing them up to the single market. Given the history and struggles of their country, that is a significant step as it progresses into the future.

I am conscious, Mr Deputy Speaker, of your remarks about comments concerning other countries that might accede to the EU and I know that you are aware of the ongoing debate about that issue. What is not helpful in that debate are baseless assertions from the Scottish Government that continuing seamless membership of the EU is guaranteed. That has been discredited by clear statements from the current President of the EU Commission. It will have taken Croatia 10 years to meet the criteria necessary to join the EU, from negotiating issues relating to its financial regulatory system to its external political relationship. I do not think that people in Croatia would have put up with the leaders of their country misleading the public about the legal advice on membership of the EU as we have seen the Scottish First Minister do.

Mr Deputy Speaker (Mr Lindsay Hoyle): Order. As I have made clear, we do not want to drift. I know that the hon. Lady is making comparisons, but I am sure that the people of Croatia are not discussing Scotland, just as we will not.

Gemma Doyle: Thank you, Mr Deputy Speaker.

A new country needs to establish itself and the appropriate institutions, and Croatia has shown how difficult that process can be. I am sure that that will be a lesson for all new states seeking to join the EU. EU

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membership is not automatic and is not easy to obtain, but after significant progress in the past 15 years, I very much support the Bill and look forward to welcoming Croatia’s accession to the EU next summer.

4.27 pm

Wayne David (Caerphilly) (Lab): My comments will be brief and I assure you, Mr Deputy Speaker, that I will not mention Scotland.

If we are honest with ourselves, the European Union often comes in for justifiable criticism these days, particularly on the Floor of the House. However, in many ways it has been a success story, given how the single market has developed and become successful—and will become more successful in future, I hope. It has also been successful in having been one of the contributory factors to western Europe not experiencing a war since the two we saw in the last century.

The big exception is the Balkans, of course. I well remember the appalling loss of life that occurred in the former Yugoslavia in the 1990s and the European Union being unable or unwilling to do anything—relying on NATO and the Americans in particular to intervene to ensure peace and eventual stability in that region of Europe. If there is an eloquent testimony for the need for the European Union to work collectively to ensure that such a thing never happens again, it is the experience of the former Yugoslavia. Linked to that is the third big achievement of the European Union—its gradual increase in size, from its original six members to today’s 27, and we are looking further afield. That is a tremendous success for the European Union. It speaks volumes about how the EU is often perceived by people outside it, rather than ourselves within it, as something worth belonging to. That momentum will continue, albeit in a different way, into the future.

I welcome the Bill. As hon. Members have said, the whole process of Croatia coming closer to the European family has been quite a long one; it has taken at least 10 years. It is important for us to recognise that lessons have been learned from the previous enlargement processes. In particular, the Minister referred to the process by which Romania and Bulgaria joined the European Union, as did Slovakia. Looking at it objectively, things could have been done better in relation to those member states, where the struggle to create a fair and open justice system still has some way to go. I think that the lessons have been learned and are reflected in how Croatia’s accession has been approached. To Croatia’s credit, many of the difficult experiences of the recent past have been confronted by apprehending and bringing to justice war criminals, and that process needs to continue. Painful though it is for some elements in the country, it is important for that process to be firmly set in stone and ongoing.

As a major trading nation, it is important that we do everything possible to open up the Balkans to trade and to establish effective market mechanisms. Croatia has gone through quite a lot of economic difficulty over the past few years, and things are far from easy today. Nevertheless, we need to support its people as much as possible in making sure that they get over the difficulties they have experienced and complete the transition to a fully market-oriented economy, albeit one with social responsibilities.

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It is important, too, to recognise that we live in a world that is becoming increasingly integrated—we live in a global economy, as is often said—but we are also seeing the free movement of people around the globe in an unprecedented way. I well remember receiving a briefing from a chief constable in Gwent in which, when I asked him where the major source of crime in Gwent emanated from, he said that it was the Balkans. That brought the point home graphically. Although he might not have been thinking specifically of Croatia, he highlighted the fact that while we are often concerned about tackling the problems in our country, we have to be aware that many of them begin elsewhere. International crime—Members have referred to the trafficking of human beings—is clearly a case in point.

One of the foremost concerns expressed by Members is immigration. Those concerns must be recognised. The Government have correctly said that secondary legislation will be introduced to ensure that we have an effective transition period prior to the free movement of labour, but it is worth bearing it in mind that we have lessons to learn. For example, Lithuania is a relatively small country that is less populous than Croatia, and it has been estimated that the number of Lithuanians resident in the United Kingdom has increased from 14,000 to 128,000. I am not against the free movement of peoples, and I am not against Lithuanians or Croatians coming to live in this country if they have work to do and can contribute to our economy, but we must be careful to ensure that we have in place the proper infrastructure so that those people are fully integrated and the necessary facilities so that they are supported as they should be. Will the Minister provide reassurances about the anticipated number of people who will seek residence in the United Kingdom once Croatia has full EU membership and the transitional period has come to an end?

I hope that Croatia’s accession will not be the end of the beginning of the process of enlargement, but that it will lead to future enlargement. Iceland has been mentioned, as has Turkey for many years. Unfortunately, Turkey has not made good progress recently, but it is nevertheless a key state for consideration. In the western Balkans I hope that the good example of Croatia—and Slovenia before it—will be noted by other states. As the Minister said, it is unfortunate that Bosnia and Herzegovina’s likely membership of the EU has slipped back, but we must be as encouraging as possible to ensure that it, too, has the prospect of joining the European family. Labour Members, and I hope Government Members, welcome this Bill and, with all necessary safeguards and caveats, we look forward to Croatia becoming a member of that European family.

4.36 pm

Mr Charles Kennedy (Ross, Skye and Lochaber) (LD): First, I apologise to Members on both Front Benches for arriving late to this debate; I was somewhat caught out by the change in timetabling that has taken place, and no disrespect was intended. Like my fellow Celt who spoke before me, I shall not be tempted into matters domestic in terms of Scotland, not least because of my role on behalf of the Liberal Democrats and the Better Together campaign. Indeed, I will be talking about little else for the next two years, so I consider this debate a burst of the oxygen of freedom that will not be with me for much longer.

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I have listened to your constructive admonitions, Mr Deputy Speaker, about the dangers of straying off topic. However, I cannot help recalling anecdotally that when the right hon. and learned Member for Kensington (Sir Malcolm Rifkind) occupied the office of Europe Minister in Mrs Thatcher’s Government, a rather sudden reshuffle saw George Younger become Secretary of State for Defence, and the right hon. and learned Member for Kensington be appointed Secretary of State for Scotland. The following weekend the Scottish Constitutional Convention was launched. The late, great Donald Dewar spoke as shadow Scottish Secretary, and he reflected on the ever-disputatious state of British politics, and Scottish politics in particular, as evinced on that occasion by the absence of the SNP.

The new Secretary of State for Scotland looked around and thought of what he had been dealing with in eastern Europe and its emergent democracies, and all the turmoil, chaos and upheaval. He was now unexpectedly and suddenly appointed Secretary of State for Scotland, but he must have looked at his previous job and thought how much easier life was when he had only the rest of the world to worry about, and not Scotland. I think that will be the fate of several of us over the next couple of years.

I want to look at this issue not just from the perspective of the House of Commons, but, together with others in the Chamber, at a wider Europe as represented in the Council of Europe—I know the hon. Member for Linlithgow and East Falkirk (Michael Connarty) will have spoken about that earlier in the debate. In welcoming Croatia’s accession in due course, it is worth bearing in mind the role that Croatia has already played as a valuable ally in continuing tough times, for us and for our other international obligations. For example, it has contributed 320 troops to the international security assistance force in Afghanistan, which speaks strongly and well. It has contributed to peacekeeping and associated activities in Libya and elsewhere in the world. It has demonstrated its internationalist credentials, and we are right to pay tribute to that today.

The Government was recently defeated in a contentious vote in the House of Commons. It was pointed out to me that each and every Liberal Democrat MP was present and—unbelievably—all voted for the coalition, I think for the first time. We voted on the losing side; it was the reverse Midas touch that we always bring to great parliamentary occasions.

It is worth bearing in mind the bottom line as far as Croatia is concerned. Political agreement was reached by the Council that the cost of accession to the EU should, in the current financial perspective, be met within existing headings—in other words, it should be budget neutral. At a time of such contention about the budget, it is only correct and proper that we put that agreement on the record. Although the next multi-annual financial framework—the term rolls off the tongue—has yet to be agreed, the benchmark has been set by how this accession has been handled. The UK played a role within the Council of Europe in assuring it. If Conservative Members are as worked up as they were last week, they might want to give credit where it is due, and approve of the financial implications of this accession.

The hon. Member for Glasgow Springburn—[Interruption.] Is that correct?

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Mr Bain: It is Glasgow North East.

Mr Kennedy: I was near enough. I have represented constituencies such as Ross, Skye and Inverness West, or Ross, Cromarty and Skye. Single title constituencies always have me scratching my head.

As the hon. Member for Glasgow North East (Mr Bain) has said, the negotiations were successful. The political and social distance travelled in just a couple of decades is immense—that is not a long time, and Croatia is not far distant from us in global terms. Nevertheless, the accession negotiations were tough. Croatia was the first country to negotiate under the new chapter 23—tough new rules on judicial reform and fundamental freedoms that were introduced at European level as a result of the lessons learned from the Romanian and Bulgarian accessions.

Therefore, the European institutions have acquitted themselves well in dealing with Croatian accession both politically and in terms of financial prudence, and according to the founding principles of Europe, which follow from the founding principles of the Council of Europe—human rights, the rule of law and democracy. We hear so much that is negative, so it is worth putting those things on the record.

On the Irish dimension of the Bill, it is worth stressing that the protocol does not change the content or application of the treaties. Indeed, the European Council conclusions adopted in 2009 confirm that the guarantees given to the Irish, which form the subject of the protocol,

“will clarify, but not change either the content or the application of the Treaty of Lisbon.”

The conclusions also state that the contents

“will in no way alter the relationship between the EU and its Member States”

and are

“fully compatible with the Treaty of Lisbon and will not necessitate any re-ratification of that Treaty”.

Those who might be tempted down another diversionary line—another fault line in parliamentary politics—might wonder whether the Bill could be used to prise open the argument over the repatriation of other powers, but the answer is most definitely non, non, non. That was made crystal clear some three years ago, but it is worth underscoring in the debate.

When the Conservatives were in power alone back in the ’80s, with very large majorities and Mrs Thatcher at the helm, the Foreign Office and Prime Minister argued in support of the enlargement of Europe. Many of us who came at the argument from an instinctively pro-European point of view believed that the Conservatives supported the widening of Europe to prevent the deepening of Europe. It was a colossal political misreading. It was not, perhaps, as colossal as Mrs Thatcher’s instinctive initial opposition to the reunification of Germany, but it was of that order—a classic Conservative misreading of the way in which Europe would develop.

As we have seen over the 20 to 25 years since then, the widening of Europe has necessitated, in so many respects, a further deepening, resulting in a European Union, or a European Community or Common Market, as it was initially known. It began with six members, now has more than two dozen, and is likely to have many more. Common sense alone suggests that one does not have to be a constitutional lawyer to see that a deepening and a greater democratic process at the core of that deepening

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are needed if those individual component parts, the member states, as well as the overarching body itself are to function effectively. Croatia and what will follow in its slipstream in coming years, in tandem with the ongoing arguments about the fate of the single currency, mean that there will have to be further European deepening in many respects if the institutions of Europe are to serve their purpose. If the House of Commons passes this Bill, it would show that it supports that purpose, and I would welcome that.

4.46 pm

Emma Reynolds: With the leave of the House, Mr Deputy Speaker, I want to reflect briefly on our wide-ranging debate on the Bill. Indeed, it has been so wide ranging that at one point I wondered whether we were going to embark on a full-blown debate about the UK and its constituent parts, but we managed to avoid that.

The hon. Member for North East Somerset (Jacob Rees-Mogg) made a characteristically long speech, while the hon. Member for Stone (Mr Cash) made an uncharacteristically short speech. My hon. Friend the Member for Linlithgow and East Falkirk (Michael Connarty) stressed the need for conditionality for new accession states and for co-operation between our Government and the Croatian Government on preventing human trafficking. The hon. Member for Moray (Angus Robertson) spoke about his time in the former Yugoslav Republic, as it then was, during the conflict and described the progress in both Slovenia and Croatia, rightly, as breathtaking. My hon. Friends the Members for Glasgow North East (Mr Bain), for West Dunbartonshire (Gemma Doyle) and for Caerphilly (Wayne David) all stressed that the Croatian experience demonstrates that the accession of new member states is by no means a straightforward process. It is lengthy and, rightly, thorough, and that should be borne in mind for future reference. Last but not least, the right hon. Member for Ross, Skye and Lochaber (Mr Kennedy) rightly put on record the contribution that Croatia is already making to the international community and to international efforts, not least the 320 troops in Afghanistan and its contribution to peacekeeping in Libya. He also stressed, importantly, the budget neutrality of Croatian accession.

The vast majority of right hon. and hon. Members who have spoken are in favour of Croatia’s accession. It is certainly true that progress needs to be made in some areas, such as those highlighted in the recent European Commission report, but progress has been made in many other areas. For that reason, the Opposition support the Second Reading of the Bill.

4.48 pm

Mr Lidington: With the leave of the House, Mr Deputy Speaker, I would like to reply briefly to some of the points that have been made. I thank Members of all parties who have taken part in the debate. Although a number of criticisms have been made of the stage that Croatia has reached in preparing for EU accession, there has been pretty nigh universal support for the principle that Croatia should be welcomed as a full member of the European Union.

Let me deal first with the points that have been made about the Irish protocol. I was asked why no referendum was required under the European Union Act 2011. As

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my right hon. Friend the Member for Ross, Skye and Lochaber (Mr Kennedy) said just now, the truth is that the protocol is declaratory. It changes neither the content nor the application of the EU treaties. The European Council conclusions of June 2009 said that the protocol was

“fully compatible with the Treaty of Lisbon and will not necessitate any re-ratification of that Treaty”.

That was at the heart of the formal opinion set out by my right hon. Friend the Foreign Secretary in his statement on 2 July this year, in which he explained why, having examined the protocol, as required under the 2011 Act, he had concluded that it fell within one of the exempt categories of legislation.

I should say to the hon. Member for Moray (Angus Robertson) that while I completely accept—and not just in respect of the Irish protocol—that the smaller EU members play a vital and welcome role in the functioning of the European Union, he will also, I am sure, have taken note of the fact that, between Croatia’s application and accession, 10 years elapsed before all the details were sorted out and accession arrangements put in place.

Mr Nigel Dodds (Belfast North) (DUP): Will the Minister give way?

Mr Lidington: The right hon. Gentleman will forgive me; I think the House would want me to make progress.

My hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) asked about the lack of action on a police law. In about a week to eight days’ time—well ahead of the proposed Committee stage of the Bill—I will make available to the Committees and in the Library the detailed tables in respect of chapter 23, which was the supporting basis for the report, which the Committees have seen. Those tables are with the Ministry of Justice at the moment. As we did in April, we will make those tables available to the House following the Commission’s October report, and I undertake to do so in good time before the Committee stage.

To deal with the point my hon. Friend made, progress on the police law could be said to have fallen victim to the democratic process. The previous Croatian Government, led by the HDZ, passed a law on the recruitment of police officers shortly before the Croatian general election. After a new Government were elected in Zagreb, they wanted to consider the position and decided that they wished to repeal the law. They have now had detailed discussions with the European Commission and decided to go ahead with the previous law, subject to some amendments. The details of the police law are finalised and we expect everything to be in place well ahead of Croatia’s expected accession date.

The hon. Member for Linlithgow and East Falkirk (Michael Connarty) asked about the risks of trafficking, a subject in which he has taken a long and detailed interest. We have not identified any victims of trafficking from Croatia in the United Kingdom. Indeed, the 2011 report by the US State Department, which ranks countries in terms of their capacity to tackle trafficking and protect victims, designated Croatia as a tier 1 country, alongside the United Kingdom. The evidence suggests that Croatia already has a robust system in place, but clearly we will want to work with the Croatians to ensure that that remains the case. Countries close to

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Croatia, such as Kosovo and Albania, are indeed source countries for traffickers. The Croatian Government are fully aware of the risks and are committed to strengthening measures to tackle trafficking. For example, Croatia intends to continue training border staff and police. A training programme on trafficking in human beings has been drafted and will be implemented as part of the border police training system. We believe that Croatia is on track to meet its commitment to tackling human trafficking.

The hon. Gentleman also asked about the need for border management. The EU monitoring reports released in April and October highlighted delays in implementing the infrastructure and equipment required for the integrated border management programme. That will be addressed as part of pre-accession monitoring, but in the meantime Croatia continues to make progress. As at August this year, the national border management information system was live at 81 border crossing points, which represents significant progress on 2011, when only 37 were so equipped. In 2011, Croatia apprehended 3,461 illegal migrants, a significant increase on the 1,946 apprehended in 2010. The total number of border officers is now 6,017, of which 4,647 are at the external border. Croatia plans to recruit 406 additional border officers before the end of the year.

The hon. Member for Linlithgow and East Falkirk asked whether Croatia would be obliged to join Schengen. The act of accession provides for much of the Schengen acquis to apply to, and be binding on, Croatia from the date of her accession, but the actual lifting of border controls to other Schengen area member states will not take place at the time of Croatia’s accession. That will take place later, following a separate Council decision, and it will happen only if Croatia meets the requirements of the Schengen evaluation procedures to the satisfaction of the Commission and the existing Schengen area member states.

The hon. Member for Moray asked about the post-accession measures. Articles 38 and 39, relating to safeguards to the single market and to chapters 23 and 24, can indeed be invoked after accession, as well as before it under the special pre-accession monitoring arrangements.

In answer to a further point raised by the hon. Member for Linlithgow and East Falkirk, the conflict of interests commission is in the process of being established, and we expect it to have been established before the end of the year. One reason for the delay is that the Croatian Government have decided to be completely transparent about the process, and they have interviewed every one of the more than 200 applicants for the post involved.

[Official Report, 12 November 2012, Vol. 553, c. 1-2MC.]I shall perhaps have an opportunity to say more about the general issue of anti-corruption measures when we reach the further stages of the Bill. Today, I would simply say that we are now seeing action being taken in high-profile cases, with convictions secured against a former Prime Minister, a former economy

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Minister and a former defence Minister. At the lower level, too, the Croatian bureau for combating corruption and organised crime has issued indictments against 257 people, secured 209 judgments including 205 convictions, and launched 191 new investigations, all between January and August 2012. Again, that is evidence of the determination of the Croatians to push forward and deliver on their promises to take rigorous measures against corruption.

My right hon. Friend the Member for Ross, Skye and Lochaber rightly referred to the part that Croatia has played in contributing to the international security assistance force operations in Afghanistan. I also look forward to the prospect of Croatia, as a full member of the European Union, serving as a role model for the other countries of the western Balkans and, through her own diplomatic and political activity, leading them towards full integration with the European family of nations, as well as strengthening the institutions that provide for democracy, the rule of law and human rights for everybody. Although there is still work to be done in the months leading up to accession, this Government believe that Croatia has achieved remarkable progress. She is on track to deliver on her promises by the date of accession, and that is why we have brought the Bill to the House and ask the House to support it tonight.

Question put and agreed to.

Bill accordingly read a Second time.

European Union (Croatian Accession and Irish Protocol) Bill (Programme)

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

That the following provisions shall apply to the European Union (Croatian Accession and Irish Protocol) Bill:


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

Proceedings in Committee, on Consideration and Third Reading

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

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

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

Programming committee

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

Other proceedings

6. Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further messages from the Lords) may be programmed.—(Joseph Johnson.)

Question agreed to.

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Banking Union and Economic and Monetary Union

[Relevant document: The Fourteenth Report from the European Scrutiny Committee, on Banking Union and Economic and Monetary Union, HC 86-xiv.]

Mr Deputy Speaker (Mr Lindsay Hoyle): I inform the House that Mr Speaker has selected the amendment in the name of Mr William Cash.

4.59 pm

The Financial Secretary to the Treasury (Greg Clark): I beg to move,

That this House takes note of European Union Documents No. 13682/12, a draft Regulation amending Regulation (EC) No. 1093/2010 establishing a European Supervisory Authority (European Banking Authority) as regards its interaction with Council Regulation (EU) No…/… conferring specific tasks on the European Central 5 Bank concerning policies relating to the prudential supervision of credit institutions, No. 13683/12, a draft Regulation conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions, No. 13854/12, Commission Communication: A roadmap towards a Banking Union, and an unnumbered Explanatory Memorandum: Towards a Genuine Economic and 10 Monetary Union: Interim report; and welcomes the Government’s decision to remain outside the new supervisory arrangements while protecting the single market in financial services.

I welcome these debates. The subject matter of today’s debate is, if anything, even more important than what we discussed last week. It is essential that proposed developments in the EU are robustly scrutinised by this Parliament. I am grateful for all the work done by the European Scrutiny Committee and its equivalent Committee in the House of Lords, as they applied their attention to the 1,100 European documents that were referred to them last year.

One theme we will come on to is how we can strengthen the scrutiny of sovereign national Parliaments over the institutions and policies of the EU. I believe that that is essential. It is principally Members of this House and our colleagues in the other place who will search for assurance that our national interest is not being blown away by a zeitgeist that is capable of carrying people along in the wrong direction.

This week is a particularly appropriate one in which to recall the value of that questioning voice. It was 15 years ago on 10 November 1997 when the then Leader of the Opposition first stood out against all fashionable opinion at the time and, in a speech to the Confederation of British Industry conference, committed my party to oppose joining the proposed euro. I had a hand in preparing that speech, and I recall one of the lines that I was proud made the cut. It said that

“if the nightmare of our experience in the ERM teaches us anything, it is not to steer by the siren voices of a supposed consensus, but to exercise the independent judgement of a cool head.”

Of course, the two people responsible for that decision and that speech are now our Foreign Secretary and our Chancellor of the Exchequer. They were excoriated at the time for declaring on that day that they intended

“to campaign against British membership of the single currency at the next general election”.

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I believe that this caused the brand-new Labour Government of the day to hesitate, and by missing the moment, they spared Britain from a disastrous fate.

Fifteen years on, the documents that we are considering today are a direct consequence of the creation of the euro and, in particular, of the failure to address from the outset some of the inevitable factors. Now, as then, it is imperative that the United Kingdom exercises the independent judgment of a cool head to determine whether the new policies being proposed are consistent with the interests of our own economy.

Let me deal first with the proposals on banking union. The first thing to say is that we and the EU need to tread particularly carefully on matters that affect financial services. The financial services industry, including banking, is not evenly distributed across all member states of the EU. The United Kingdom has a vastly greater strength in the conduct of, and international trade in, financial services than any other member state. Financial services and related areas employ more than 2 million people in this country—two thirds of them outside London—and contribute £1 out of every £8 of Government revenue. That is about £1,000 for every man, woman and child in this country.

We have a £37 billion trade surplus in financial services and Britain accounts for 61% of the whole of the EU’s exports of financial services. Commissioner Barnier said last month:

“It is in our general interest in Europe to have the biggest financial centre in the world. A strong City is good not only for Britain but for Europe.”

That is a welcome recognition. We will never jeopardise an industry of such particular importance to the United Kingdom.

In scrutinising these proposals, we need to have a clear fact in mind. People do not need banking union because they are part of a single market. The appetite for banking union arises solely because of the problems of the single currency. However, although banking union is primarily a matter for members of the eurozone, it strongly engages Britain’s interests in two ways.

Wayne David (Caerphilly) (Lab): Does the Minister honestly believe that the Prime Minister throwing a tantrum, walking out of a Council meeting and claiming that he exercised a veto when he did not is helpful to Britain’s national interests?

Greg Clark: I and, I think, the country are pleased that the Prime Minister was prepared to stand up for British interests, and I know that he will always do so. It is certainly not a matter of regret.

I think it is desirable from the point of view of the British economy that, since the eurozone exists, it should be successful, rather than a source of economic weakness. Indeed, as the Governor of the Bank of England has said:

“The biggest risk to the recovery”

in this country

“stems from the difficulties facing the euro area, our main trading partner.”

Secondly, we need to be vigilant to ensure that our access to the single market in banking, now and in the future, is not undermined and jeopardised by the creation of a banking union. That means putting in

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place safeguards to ensure that the UK cannot be discriminated against in the future in single market decision-making processes.

The Commission’s current proposals are not yet acceptable in that respect. For example, the European Banking Authority—which, as Members know, is the organisation that currently ensures that there is a level playing field for banking within the single market—operates on the basis not of unanimity but of majority voting. The European Central Bank regulation specifies that that the ECB would

“coordinate and express a common position of representatives from competent authorities of the participating Member States in… the EBA”.

That effectively requires participating member states in the euro to caucus in adopting positions and voting in the European Banking Authority.

Mr James Clappison (Hertsmere) (Con): I warmly welcome the approach that my right hon. Friend is taking to the whole issue, and to voting rights in particular. Are not the voting arrangements for the European Banking Authority completely unacceptable to our national interests, as he has described them, in that they will result in a banking authority that is determined by a caucus that has been arranged in advance and in which this country is deprived of its say? The Labour party may think that that is somehow in accordance with our national interests, but it most certainly is not.

Greg Clark: My hon. Friend is entirely right. I do not think that we should be shy about insisting on protecting something that is very important to us. The single market in financial services is essential, and the current proposals would compromise it.

Mr Bernard Jenkin (Harwich and North Essex) (Con): I, too, welcome my right hon. Friend’s approach, but may I caution him about the double-edged invocation of the single market? We are threatened not just by the voting rights in the European Banking Authority, but by those in the Council of Ministers. It is equally possible that the member states of the eurozone that are in the banking union will caucus in the Council and use a single-market measure to create a single market in banking services to reflect the policy already adopted by the banking union. How are we to be protected from that?

Greg Clark: My hon. Friend is right to be alert to those dangers and risks. One of the clear principles on which we have insisted throughout all our negotiations on all the different dossiers is that we will accept nothing that would compromise our ability to participate in the single market.

Let me say a bit more about our stance on the EBA. What is currently proposed would not just require but enable members of the eurozone to caucus and adopt positions, which poses the clear risk that the ECB could dominate EBA decision-making. Given that 17 of the 27 EBA members are in the eurozone, that would constitute a blocking minority on all issues decided by qualified majority voting, and indeed a qualified majority under the new Lisbon rules.

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Moreover, such action by the Commission would create an asymmetry of treatment between supervisory bodies. The proposal reflects the legal position that, as an EU institution, the ECB cannot be legally bound by EBA decisions on binding mediation, whereas the Bank of England could be. We have argued since the start of the negotiations that it would be inequitable and unacceptable if the Bank of England could be directed in that way but the ECB could not. We are pleased that our concerns are finally being acknowledged, but the asymmetry must be resolved if there is to be any final agreement.

As is required by both the motion and the amendment tabled by the Chairman of the European Scrutiny Committee, my hon. Friend the Member for Stone (Mr Cash), we will certainly use what the amendment describes as our

“best endeavours to ensure that the proposed changes…in the European Banking Authority are not adopted”.

In fact, that is an uncharacteristically mild form of words from my hon. Friend. We will insist that those changes are not adopted, and we will require full protection for the position of the United Kingdom and the other non-eurozone members in the EBA.

Mr John Baron (Basildon and Billericay) (Con): I am very pleased to hear what the Minister is saying, but what concrete guarantees would exist if the Government’s proposals were adopted to ensure that the City of London’s interests could not be adversely affected by qualified majority voting by eurozone members, the ECB or anyone else on the continent? That is the key question that concerns us today.

Greg Clark: A number of mechanisms could require that, for example, the requirement for a dual majority. A number of possibilities are being discussed at the moment. What I have set out clearly is a very firm principle that we will not find ourselves in a position where we will be dominated by the ECB. That is what we are taking into the negotiations. We take a firmer view even than we are urged to do by the amendment.

Mr William Cash (Stone) (Con): Does my right hon. Friend not accept that because this is governed by qualified majority voting, even with our best endeavours the reality is that it is not merely likely but it is as certain as we could imagine, given what we hear from the other side of the European Union, that we will be outvoted? To follow on from the remarks made by my hon. Friend the Member for Basildon and Billericay (Mr Baron), what guarantee can the Minister give, in the light of the fact that this is so important for the City of London?

Greg Clark: As my hon. Friend knows, the ECB aspect of the regulation requires unanimity, and we regard both aspects of this as reinforcing each other. We have made it plain, as I am doing from the Dispatch Box today, that it is an absolute requirement that we will not be dominated by the ECB. After the Prime Minister goes to the Council he will come back to this House. If he has been able to establish agreement, he will set out what that is, and if not, he will set out why it was not possible.

6 Nov 2012 : Column 809

Let me deal with the second part of my hon. Friend’s amendment, where he draws attention to the need to ensure that the powers of the ECB’s governing council are not delegated to the single supervisory function in a way that is unlawful in terms of the treaties. That is a serious matter. It is vital that the weighty responsibilities that the single supervisory mechanism will discharge are vested in a way that is accepted to be legal. His observation in his amendment that it would ultimately be a matter for the European Court of Justice if there were doubts about the legality of the final arrangements is very constructive and accurate, and I hope that he will accept my assurance that our criteria in evaluating the SSM will be as in his amendment. In other words, they will be: first, that it is lawful—we reserve the right to establish that; secondly, that the integrity of the single market is respected, as I said; and, thirdly, that the UK cannot be discriminated against in the way that is proposed.

Mr Cash: Does my right hon. Friend recall that in relation to the fiscal compact our representative at UKRep, Sir Jon Cunliffe, wrote a letter to the Secretary-General of the European Council specifically stating that the UK Government wanted a legal reserve in respect of the illegality of that matter? On this issue, where there is clear evidence from the Council of Ministers’ legal adviser that the matter is regarded as unlawful, will my right hon. Friend guarantee that not only have we received a legal reserve, but, unlike on the previous occasion, we have followed it through with a reference to the European Court? So far, we have got a promise but no completion of it.

Greg Clark: I am grateful to my hon. Friend for that. I am not as familiar as he is with what went on in the previous exchange of correspondence, but I can say that it is essential that the arrangements need to be legal. There is no point marching up a hill of banking union if the whole thing falls apart—I mix my metaphors, but he understands what I mean. There are also other matters on which we will need to be satisfied before any of the proposed measures can be adopted.

Mr Jenkin: My right hon. Friend made an important point when he said that the British Government would reserve their position on the legality of this new instrument and how it might be used. Will he just expand on that? Would it not be sensible for UKRep to write a letter similar to the one written in the case of the fiscal union treaty, at the very least, in order to make that clear?

Greg Clark: I do not think that there is any difference between us on this. It is essential that this arrangement is legally sound. At the moment, the negotiations are continuing and the shape of the regulation is evolving, but the sensible commitment I have given is to make sure not to proceed unless we are satisfied that it is legally robust.

Let me talk about some of the other measures we need to bear in mind. We must make it absolutely clear that both now and in the future there should be no requirement, for example, for clearing houses that handle significant amounts of euro-denominated business to be located geographically in the eurozone, as proposed by the ECB—a proposal against which we have launched legal proceedings. That blatantly undermines the single

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market and the United Kingdom’s financial services industry. It is a poor indication of the ECB’s attitude if it intends to proceed in such a way. We need to be clear, too, that London is home to more clearing houses than any other EU capital and such proposals are unacceptable.

As the House will see, there is some way to go before the banking union proposals are acceptable to the Government. They will not be agreed by the United Kingdom unless and until we are satisfied that the UK’s position in the single market has been secured.

Let me turn briefly to the document known as the four presidents’ report, which was published on 12 October. It is an interim report that gives a general overview of the measures that the euro area member states might want to consider taking to improve the functioning of the euro. At this stage, there is little detail in the report apart from in the area of banking union and a great deal more discussion will be needed before there is agreement even on which issues should be explored further. The House will have a particular interest, however, in the discussion about democratic legitimacy and accountability.

I emphasise again that although the UK will not be part of the arrangements, it seems to me to be important that when significant decisions are being taken at the eurozone level about national matters, national Parliaments should be able to scrutinise those decisions, just as the Bank of England, the UK regulatory authorities and not least Ministers are accountable to this House and the House of Lords.

Wayne David: I welcome what the Minister has just said, but does he accept that in much of the documentation we are discussing, as the European Scrutiny Committee has pointed out, preference is given to the European Parliament rather than national Parliaments as regards accountability?

Greg Clark: Indeed it is. The point I am making very clearly—perhaps not clearly enough—is that I think there should be a greater role for national Parliaments.

The Chairman of the European Scrutiny Committee, my hon. Friend the Member for Stone, was characteristically eagle-eyed and meticulous in his regard for independence when he baulked at the line in my explanatory memorandum that stated that

“there should be further consideration of how we can use national parliaments to enhance legitimacy and oversight.”

He is absolutely right that “use” is not the mot juste and instead I should have said that the authority of national Parliaments should be respected. It was the very independence and rigour of his and the Committee’s scrutiny that I was commending, and anyone who labours under the misapprehension that his Committee can be used does not know him or his colleagues. I will be more exact in future.

When the document was considered in the October Council, the Prime Minister secured an explicit commitment that the final report and road map in December must include concrete proposals to ensure that the single market’s integrity is respected. I look forward to this afternoon’s debate and tell all hon. Members who will participate that their guidance and advice will be taken seriously by the Government as the detailed

6 Nov 2012 : Column 811

negotiations on all these matters proceed in Brussels and across capitals in Europe over the weeks and months ahead.

Several hon. Members rose

Mr Deputy Speaker (Mr Nigel Evans): Order. Before I call the shadow Minister, let me remind the House that the debate is time-limited and will end at 6.29 pm. When the shadow Minister sits down, I will announce the time limit to ensure that all Members who have indicated that they wish to speak get in.

5.18 pm

Chris Leslie (Nottingham East) (Lab/Co-op): No pressure there, then, Mr Deputy Speaker.

I have a lot of sympathy with the Minister today. Let us hope that he is a little luckier than he was last Wednesday, although of course the curse of Tunbridge Wells will have its way. In a way, as he explained, banking union is a natural downstream consequence of monetary union. It would be wrong to resist it for the eurozone, as the eurozone crisis has exposed a series of risks to economic stability, not least of which is the relationship between sovereign debt and banking debt and the need to find credible ways to prevent private banking losses from dragging down sovereign fiscal positions. The UK has its own banking union and our monetary policy sovereignty has given us a measure of protection during the sovereign and bank debt crises that have engulfed the eurozone.

I thought the Minister was perhaps labouring under the impression that his plucky Members of Parliament kept us out of the euro between 1997 and 2010—that is too funny, as of course that was the decision of the previous Labour Administration. It was the right decision.

Jacob Rees-Mogg (North East Somerset) (Con) rose

Chris Leslie: I will not give way yet, as I am conscious of the time.

We were right, too, to bail out the banks in 2008, but that came at a high cost for the taxpayer and for the country’s economic prospects. UK public debt was adversely affected by the purchase of banking assets and the subsequent loss of revenues from financial services. These issues are now affecting countries around the world, especially in the EU. Monetary policy sovereignty has allowed the UK to adopt an active interest rate policy to counteract those economic headwinds—something less available to those in the eurozone.

To save the euro, the eurozone has looked at new rules to grip the fiscal policies of its member states. Fiscal union in the EU is now widely recognised as dependent on banking union. Germany initially insisted on that, and it has asked that the single supervisory mechanism—the eurozone nation state regulators and Governments—be completed before banks can access the European stability mechanism and the European Central Bank’s outright monetary transactions programme, hence the imperative to agree these matters. In recent weeks, however, Germany is rumoured to have lost some enthusiasm for that tougher banking union and

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its consequences, especially as some of its smaller banks face major regulatory upheaval.

It is right that the ECB’s role in supervisory policy should be triggered, by unanimity if necessary, as required in the Maastricht treaty. Central banks are increasingly in the driving seat in financial regulation, as is the case in the UK, and it is necessary for the ECB to have a clear capability in its role overseeing the operation of the eurozone. The ECB is a full treaty institution, and it must be governed by treaty rules and member state unanimity, as we heard from the Minister. In that process, the rights of non-eurozone members, particularly the UK, must be safeguarded in several ways. We should not be party to any deposit guarantee mechanisms or pre-fund recovery or resolution mechanisms. The UK has undertaken its own measures in that respect, and there are no proposals on the table that would affect our taxpayers directly.

The rules for the single market, including a single rule book for the financial services sector in the EU, should involve all 27 member states. The European Banking Authority—as well as other European supervisory authorities—is the vehicle for preserving the integrity of the single market. The Commission says in its documentation that

“it is proposed that voting arrangements within the EBA should be adapted to ensure EBA decision-making structures continue to be balanced and effective and preserve fully the integrity of the Single Market”.

That is absolutely crucial, but we need far more details about how that will work. The 17 eurozone countries will act en bloc through the ECB in their seats on the EBA, which could represent a permanent majority on all issues, as the Minister explained. The EBA has rule-making powers under qualified majority voting decisions, it mediates between supervisory institutions, and it shares supervisory best practice. There is a real risk of the ECB bloc acting as a permanent caucus to overrule the 10 non-eurozone nation states.

Mr Baron: What does the hon. Gentleman understand our guarantees to be to ensure that City interests are not adversely affected by QMV if the regulations go through unamended?

Chris Leslie: As I shall come to, we should seek such key guarantees. I do not think that there is a sufficiency under the proposals on the table. As I said, I am sympathetic to the Government’s situation. However, there is a crucial difference between the Opposition and the Government. We believe that it is really important that we stay in the room somehow so that our voice continues to be heard and we can shape and mould supervisory rules, given the importance of financial services to our economy. How can we continue to be involved while not being at risk of being overridden by the 17 eurozone members? That is the conundrum with which we are trying to grapple, and it is shaping up to be a test case in the two-speed Europe debate.

Mr Clappison: The phrase, “Staying in the room” is one we often hear. However, is it not the reality of the voting arrangements that the hon. Gentleman would be staying in one room and the important decisions would be made in another?

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Chris Leslie: It is right for the hon. Gentleman to voice that anxiety. I do not want us to be on the margins, unable to promote the best interests for our nation and our economy. Given that our financial services sector represents approximately 40% of the total of the European Union’s financial services sector, that is absolutely at the core of our vital national interests. It is therefore imperative for us to remain an active driving force in the EU single market in financial services.

Mr Jenkin: It seems to me that the hon. Gentleman is trying to have his cake and eat it. Either he is going to be in the room—in the banking union—or not. If he is not going to be in the banking union, the question that he is failing to grapple with is this: what safeguards and protections do we need given that we will not be in the room because we will not be in the banking union? Perhaps he could provide an answer to that question instead of just waffle.

Chris Leslie: The hon. Gentleman is too kind, as uncharacteristic of him as that may be.

I am afraid that this is a tall order for the Government to negotiate. It is a conundrum. I do not in any way shrink from the mountain that needs to be climbed in squaring this circle, if I may mix my metaphors in that way. I am just concerned that the Government’s approach—perhaps an echo of their approach to the EU budget—is not ambitious enough. I urge hon. Members to talk to institutions across the City of London and to financial services practitioners across the country. They are very worried about their position if they are not able to be part of a single market. They know very well that there are forums in which the rules will be made and shaped, and yet of course they want to reserve our rights from a UK position. Somehow, we have to try to forge a negotiating strategy that manages to do better.

Mr Cash: Will the hon. Gentleman give way?

Chris Leslie: I will in a moment, but I am conscious of time.

The motion expresses, in only the most general terms, the Government’s policy to

“remain outside the new supervisory arrangements while protecting the single market in financial services.”

That is necessary, but it is not sufficient. Perhaps it would be better if Ministers found ways to stay outside the scope of the eurozone’s rules—the point made by the hon. Member for Harwich and North Essex (Mr Jenkin)—but somehow still be in the room on EU-wide supervision matters as they develop, and to secure protections in any future settlement on EBA rule-making and mediation.

Mr Cash: Surely the hon. Gentleman is missing one major point, which is that the transfer of the jurisdiction under the single market arrangements that took the City of London away from the United Kingdom and gave it to the European Union was a decision taken by his Government. That is why the problem he is now having to deal with—the anxieties he referred to—has arisen. That the coalition has acquiesced in that is another story. The fact is, however, that the real responsibility lies with those who transferred the jurisdiction, as I pointed out in the Financial Times three years ago.

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Chris Leslie: I do not want to get too much into the history of these things. We could go back to the Maastricht treaty, the formation of the eurozone and the inexorable logic of how we have got to where we are today. All I know is that it is important that we try our best and redouble our efforts to ensure that we have a negotiating strategy that secures the best deal possible for the UK.

Jacob Rees-Mogg: Will the hon. Gentleman give way?

Chris Leslie: I should like to make a little progress if I may.

I know that hon. Members will say, “How can we manage to secure these particular arrangements? What should our stratagem be?” Government Members will recall Lady Thatcher’s invocation of the Luxembourg compromise—a quiz question for hon. Members who recall that device. It has not been in use in recent times, but it was a way, in certain circumstances for qualified majority voting arrangements, to ensure that there was a capability of promoting vital national interest. There was at one point a recognised device for ensuring that one could stay in the room. If vital national interests were affected, then certain levels of protection were possible. I do not in any way deny that that is a difficult position, but that is the sort of scale of proposition that the Government should be more actively asserting. The Government need to negotiate a clearer and more distinct set of rules that protect our status outside the eurozone while ensuring that we have an ongoing role in how new rules develop across the whole EU. In our view, that must be the Prime Minister’s negotiating objective.

We have other concerns and questions about the SSM. How can it connect with the wider public and be subject to democratic accountability? That is an important point, because the bodies at the heart of the SSM will need to be more transparent. I am not clear whether they will publish their minutes in the same way as the Bank of England or the Federal Reserve, but we need to start addressing some of those transparency questions. Furthermore, what will be the relationship between the ECB’s monetary policy stance and its approach to decisions on financial supervision?

The composition of the SSM is complex and lines of accountability are extremely confused. For example, the European Central Bank is a superior treaty institution, yet the EBA will in theory sit on a junior institution. It is extremely difficult to see lines of accountability and how the legal issues raised in the amendment will be resolved. What will happen in the intervening months and potentially years before this complex constitutional wiring is settled? What if new market pressures force banking crises that require the stability mechanism or outright monetary transactions to be triggered, and what if there is no SSM in place?

How do we prevent City of London institutions and firms, which contribute about one sixth of Britain’s GDP, from changing their opinion about London in the long run as the right place to locate, when there is a risk that we will be marginalised in the decision-making forum for EU banking rules? They will worry about the prospects of operating under a different set of rules from those on the continent. Our vital national and economic interests are at stake, so we need to ensure that we keep involved, do not get pushed out and avoid being marginalised, while of course reserving our rights.

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Wayne David: My hon. Friend has set out a precise and appropriate agenda for the country to pursue, but does he agree that for that agenda to be pursued effectively we need the ability to put across arguments and to persuade? What we do not want is rhetoric and empty gestures, which is what we are getting from the Government.

Chris Leslie: I worry that that is the problem with the Government’s approach to the negotiations. I do not deny for a moment that this is a tall order as a negotiating strategy, but it is necessary to protect our national interests. Of all the 10 non-eurozone countries, we have the most at stake. As I said, 40% of the EU financial services sector comes from Britain. We cannot allow ourselves to be treated as an afterthought in these negotiations. Why are the Government letting others shape the thinking and make all the running on EU banking union reform? Our vital national interests are on the line. We need a clearer negotiation strategy from the Government from the one we have seen to date.

Several hon. Members rose

Mr Deputy Speaker (Mr Nigel Evans): Order. We will start with a six-minute limit, but it will have to be lowered. I call Mr Cash to move his amendment.

5.32 pm

Mr William Cash (Stone) (Con): I beg to move amendment (a), in line 10, leave out from ‘and’ to end and add

‘whilst welcoming the Government’s desire to seek safeguards for the UK, calls on the Government in respect of Regulation (EC) No. 1093/2010 to use its best endeavours to ensure that the proposed changes in the voting rights in the European Banking Authority are not adopted, to use its veto in respect of European Union Document No. 13683/12 so as to ensure that the powers of the Governing Council of the European Central Bank are not unlawfully delegated to the Single Supervisory Mechanism without an amendment of the treaties and/or to refer that matter to the European Court of Justice for adjudication of that proposal.’.

I am deeply troubled by the wording of the motion. In my judgment, it simply does not make sense to state that the House should welcome

“the Government’s decision to remain outside the new supervisory arrangements while protecting the single market in financial services.”

We acquiesced in to the Lisbon treaty, the Labour party agreed to the transfer of jurisdiction over the City of London to the EU, which was wrong—the Single European Act was never remotely intended to produce such a result—and, furthermore, views I have received from the City clearly demonstrate that it does not believe that the proposals in the motion will protect the UK or a single market in financial services.

There is another massive issue about the rule of law in Europe. The Foreign Secretary, in his speech to the Körber Foundation conference in Berlin a fortnight ago, said that what bound us together in the EU and the reason for the Government wanting to remain part of it was that it

“has helped to spread and entrench democracy and the rule of law across Europe.”

The tragic reality is that the EU does not subscribe to the rule of law. On 17 December 2010, Madame Lagarde said about the first bail-out fund, the European financial stability mechanism:

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“We violated all the rules because we wanted to close ranks and really rescue the euro zone.”

Germany and France themselves broke the stability and growth pact. Furthermore, both the Government and the Attorney-General are clearly of the view that the agreement on the fiscal compact was unlawful, but in reality nothing has been done—hence my call for the legal reserve on this matter, although the legal reserve issued before has never been implemented.

The Government know that the proposals referred to in the second part of my amendment are unlawful. The Council of Ministers’ own legal adviser, in a lengthy opinion which I have seen and which the Government cannot dispute, states that there will have to be an amendment to the treaties if the powers of the governing council of the ECB are to be delegated to the single supervisory mechanism.

The legal opinion says on the proposal amending the EBA regulation, in effect, that in terms of the EBA’s dispute resolution powers there is no justification for treating the ECB differently from banking authorities in non-eurozone member states by exempting it from those powers. To do so would be a clear breach of the principle in law of non-discrimination.

As to the proposal giving the ECB prudential oversight of credit institutions in the eurozone, the legal opinion states that in establishing the single supervisory mechanism the council must respect the legal framework for decision making within the ECB set by primary law—that is, the treaties. This framework does not allow the ECB’s governing council to delegate decision-making functions on banking supervision to a subsidiary body such as the SSM. There is nothing in the legal base for the SSM proposal, in article 127(6) of the treaty on the functioning of the European Union, which would permit secondary law—that is, this draft regulation—amending the rules laid down in primary law. There is no question about it and the Government know that.

Non-eurozone member states are not entitled to participate in the ECB’s decision making, so they can have no formal decision-making role in the SSM as conceived. Furthermore, the law on banking supervision in the EU will be made up of directives to a significant extent. This is a requirement of the treaties. That means that the ECB cannot propose one-size-fits-all legislation on banking union. Rather, it can propose legislation which allows for differences in national transposition.

We simply cannot countenance a situation in which there is a wilful breach of the rule of law and where the dysfunctional European Union vaunts the rule of law, yet deliberately breaks its own rules. This is precisely what led to the kind of constitutional crisis that we have seen in our own history when Governments from the Stuarts onwards claimed a divine right to rule but then broke the common law. This is the primrose path to constitutional disaster not only for the United Kingdom, but for Europe as a whole. I hope the House will understand my concern, as I suggested back in the 1990s that this would happen.

I hear what the Minister says but I cannot understand why and how, given comments that I have received from the City of which I am sure he is aware. Those in the City make it clear that the single market would be put at risk by an imperfect single market in financial services in which rules differed by level of membership of the EU. Furthermore, they say:

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“It is essential that voting arrangements within the European Banking Authority are clarified so as to avoid members of the Banking Union voting together en bloc and imposing financial regulation on non-Eurozone members through qualified majority.”

For “clarified”—

Mr Jenkin: Will my hon. Friend give way?

Mr Cash: I will certainly give way once.

Mr Jenkin: Does my hon. Friend agree that for us to invoke the single market is doubled-edged, because in the end it will be the Commission that invokes the single market as a pretext for levelling the playing field which has been unlevelled by measures taken by the banking union? We will therefore finish up with measures that we do not want being imposed on us by qualified majority voting.

Mr Cash: That is precisely right. It was never intended when we voted—and I voted at the time, with a reservation about the sovereignty of the United Kingdom Parliament, which I was not allowed to debate—that we would be in this very position. That was in 1986 when I voted for the measure, but it was with that reservation.

To complete my point, where the comments from the City say “clarified”, I would say changed. We must change the rules, not merely clarify them, but we cannot do so because of QMV. That is the problem and it comes from the Single European Act.

Mr Baron: Will my hon. Friend give way?

Mr Cash: Just once more.

Mr Baron: Does my hon. Friend agree that the Government’s defence that QMV cannot be extended to decisions regarding the City cannot be right, and their defence of the idea that the ECB cannot override non-eurozone members is at least highly questionable when it comes to the legal situation that my hon. Friend is highlighting, and that therefore there is a distinct danger?

Mr Cash: I would go further and say that the Council’s legal adviser knows exactly what the position is, as do the whole European Union and our own Government. The opinion is out there; I have read it and it is crystal clear. The reality is that there is absolutely no question about it.

I have great sympathy for the Minister and pay tribute to him. I will not go into the details, but it was because of him that we got the documents in the first place. He is a man of great integrity, and I think that he is in a very difficult position tonight, stuck between a rock and a hard place. I have to say that I do not believe that what he has told us really gives us the necessary guarantees and satisfaction. This is not about what we think, or about grandstanding or being difficult for its own sake; as he said at the beginning, this is in many respects—I would not say entirely—on a par with the matters on which we rebelled last week. We do not want to have to do this, but it is a matter of fact that we face this situation.

I have another commentary from City analysts stating that the concern is that the UK could

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“still lose the ability to prevent a decision from being taken by the EBA to intervene in a UK bank directly under the EBA’s binding mediation powers.”

They make a similar point about the need for amendments to the treaties. The truth is that it would not be right for Members of Parliament not to register their votes against these proposals in the hope—like Mr Micawber—that something would turn up, because I am afraid that what this amounts to is complicity by our own House and our Government in the violation by the EU of its own laws and the avoiding of amending the treaties for reasons of mere expediency. Even if the EU does come up with something, I believe that it will be merely a fix to avoid revealing its real intentions and, of course, the real results, which will cause so much harm to the UK and the City of London. I blame the Labour party for much of this, as I warned of it several years ago.

The so-called remorseless logic of advocating a banking union is more of a remorseless shift away from our own national interests while the banking union moves the eurozone into an ever deeper and blacker hole with money, either invented or printed, pouring into it. That is a recipe for economic disaster.

5.41 pm

Kelvin Hopkins (Luton North) (Lab): I wish to speak briefly in support of the amendment, which I have signed, and to applaud everything the hon. Member for Stone (Mr Cash) said, apart from his comments about the Labour party. I believe strongly that banking regulation should be determined by national Governments and Parliaments and that, if there are to be international agreements, they should be bilateral or multilateral agreements between Governments and not determined by the European Union.

I am certain that my views on banking regulation are very different from those of Government Members, but I agree that we should determine what it is, not the European Union. The most damaging change for Britain was when Mrs Thatcher abandoned exchange controls in 1979, which was the most serious act taken by the Conservative Government in those years. Since then, we have seen all the crises arising from globalisation. We cannot put the genie back in the bottle, although I think that in time we might have to try, but it would take another massive crisis before that happens.

With regard to the euro, I have always been wholly opposed to economic and monetary union and wrote my first paper about it in 1979, when I opposed the European monetary system. I wrote another paper about the exchange rate mechanism and predicted its crash, and I opposed Maastricht. I have written and spoken thousands of words on these matters over many years, and I am afraid that I have been proved right. The crisis now affecting us is quite appalling. In Greece there is now a fascist party infiltrating the police and threatening to undermine democracy while the Greek economy disappears into a black hole, and that is the result of a mad economic policy and strategy. Countries should have their own currencies and should be able to determine their own parities relative to other countries.

The Government ought to go into the negotiating room at any time feeling strong, because the European Union needs Britain much more than we need it. We buy vastly more from the EU than it buys from us. With Germany and France now predicted to be going into recession, they will need our trade even more. Our

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exports, compared with our imports, are tiny. The German economy is heavily dependent on massive exports to Britain, so we can negotiate from a position of strength and say, “If you make life very difficult for Britain, we could make life very difficult for you as well.” We do not want to do that; we want to be comradely and internationalist. But let us not think of ourselves as a weak country, because we are very strong.

5.44 pm

Mr James Clappison (Hertsmere) (Con): I warmly welcome the approach taken by my right hon. Friend the Minister for Europe and the words that he used to describe the situation. However, I support the amendment tabled by my hon. Friend the Member for Stone (Mr Cash). It is an important amendment, which complements the Government’s motion. It questions the legality of the arrangements and, in particular, the voting arrangements, which I drew attention to in an intervention.

My right hon. Friend spoke entirely correctly—with great conviction and accuracy—about the lawfulness of the delegation of powers. The only comment that I make in addition to what my hon. Friend the Member for Stone said is that it is important, given that the EU is governed by a legal framework and is a treaty organisation, that we should have certainty when it comes to the legal provisions of those treaty arrangements. All too often we have seen not certainty but legal terms and conditions being overridden by political will. The situation that we are discussing looks very much like another case of that type, and in such cases one simply cannot trust the legal arrangements.

On the voting arrangements set out in the regulation on the European Central Bank and their implications for the European Banking Authority, while the single supervisory mechanism in the ECB concerns the eurozone, the European Banking Authority concerns all members of the European Union and the whole single market. It sets the rulebook for the single market and has important supervisory responsibilities. The arrangements in the ECB regulation are breathtaking. It is not just a question of having the political will for nations to cohere together; it is a condition of the EU’s law—a regulation—that the member states of the eurozone work together, co-ordinate their actions and take a common position when it comes to the European Banking Authority. That means that in the European Banking Authority’s arrangements for voting, the eurozone bloc will have the whip hand in each of the decisions taken. They will be determined in advance.

The situation is a bit like those council meetings that we sometimes see in this country in which political groups with a majority decide everything in advance in a caucus. They then go into the council to debate a decision, but everybody knows what it is going to be. The same is happening here—the European Banking Authority is being turned into a sham. All the decisions will have been taken elsewhere and in advance and we will be deprived of our say.

Martin Horwood (Cheltenham) (LD) rose—

Mr Clappison: I shall give way to the hon. Gentleman if he is able to put a different complexion on the matter.

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Martin Horwood: The hon. Gentleman is making an important point, but it surely only emphasises the importance of carefully negotiating the voting rights of the United Kingdom and non-eurozone members within the European Banking Authority. Does not the process advocated by the amendment—a veto and then Court adjudication, effectively—blow that negotiation out of the water and risk damaging this country’s rights within Europe?

Mr Clappison: The proposals are here in black and white. I hope very much that the hon. Gentleman will join us in supporting the Government to take every measure, up to and including a veto if necessary, to preserve our position and to stand up for our interests in the European Banking Authority. We simply cannot have a sham.

It is no use pretending that by talking nicely, going into the room, being at the top table and all the rest of it is going to be the solution. We have heard those warm sentiments so many times in the past. We are discussing a matter of negotiation to protect our interests, and we have to be prepared to take decisions that are unpalatable.

Jacob Rees-Mogg: Further to the point made by our hon. Friend the Member for Cheltenham (Martin Horwood), is it not the case that every member state of the European Union, with the exception of the United Kingdom and Denmark, is obliged to join the euro at some stage? When 25 out of 27 EU members are members of the euro, they will have a majority whatever voting system is cooked up.

Mr Clappison: My hon. Friend pre-empts my next point. I am drawing attention to the voting arrangements laid down as a matter of European law in a regulation that gives the eurozone the whip hand, as matters stand. But of course he is absolutely right that other non-members of the eurozone have the ambition to join the euro and that, along with Denmark, we do not have to join it as a result of the opt-out.

As my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) said, even without the legal obligations we could expect members of the eurozone to cohere together to be a majority, and we can see that it will be a growing majority.

Mr David Ruffley (Bury St Edmunds) (Con): If the opt-in countries and eurozone members are subject to the ECB rules but are not legally called a caucus because the ECB does not write it down as such, they will nevertheless, de facto, hunt as a pack and outvote us in the European Banking Authority, so it does not matter what the regulation says.

Mr Clappison: My hon. Friend is right. It is quite extraordinary to have a regulation setting out that they must act in a caucus, even though it is probably likely that they will do so anyway of their own free will; they will certainly see a common interest in it.

This sets a very worrying precedent for the future whereby the eurozone is going in one direction in working together as a political, coherent body, and being required to do so as a matter of law. For the avoidance of any doubt, and particularly for the benefit of the hon. Member for Cheltenham (Martin Horwood), I will read

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out the provision that is in black and white—not up in the air somewhere, subject to negotiation—on page 33 of our documents. It requires member states of the eurozone:

“To co-ordinate and express a common position of representatives from competent authorities of the participating Member States when participating in the Board of Supervisors and the Management Board of the European Banking Authority, for issues relating to the tasks conferred on the ECB by this Regulation.”

That is European law, and if they fail to do what it says they will be breaking it—although they may, of course, choose do it anyway of their own free will.

This is a striking illustration of the fact that the eurozone is going in one direction, seeing its political interests as a whole cohering together, while we stand in a quite different position. This provision, and the nature of the relationship that it seeks to put in place between the ECB and the EBA, should give us all a lot of food for thought, because it has major implications for our future in the European Union.

Several hon. Members rose

Mr Deputy Speaker (Mr Nigel Evans): Order. The time limit has been reduced to five minutes.

5.52 pm

Andrea Leadsom (South Northamptonshire) (Con): Like all Members here, I urge the Government to consider renegotiating Britain’s relationship within the European Union as a full member but using every opportunity that presents itself to get a better deal for British taxpayers. I firmly believe that that is entirely possible and that the establishment of the European Banking Authority may give us one of the greatest opportunities yet to negotiate not just to defend British financial services but to get something back that enables us to expand our financial services activities.

The hon. Member for Nottingham East (Chris Leslie) talked about the Luxembourg compromise, which was proposed in 1966 following General de Gaulle’s refusal to take part in European Council proceedings. It urged the EU to recognise nation states’ vital interests in particular industries. For example, the French have a veto over the common agricultural policy and the Spanish have a veto over fisheries policy. The automotive industry is as important to the Germans as financial services are to the UK, but they are able to use not only qualified majority voting but competition legislation to defend their industry, which is much less flighty than financial services. We in Britain have less protection than any other member state for this strategically vital industry which produces 1 million jobs directly within it and represents 10% of our GDP and 10% of our annual tax take.

I applaud my hon. Friend the Member for Stone (Mr Cash) for his work on looking at the legality of European banking union, but I urge that instead of focusing on that aspect, which is a given—I do not for one moment believe that our Government would sign up to something that is illegal at EU level—we should instead focus on what we can get in return for our consent. Of course, European banking union is in all our interests; it is absolutely crucial for our economic growth because if the eurozone collapses, we are in big trouble too. Nevertheless, financial services are core to

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us as well. As the Prime Minister showed by using his veto last December, he is not afraid to stand up for this most important sector.

I would like the Government to negotiate three things. The first is a legal safeguard for the single market so that no other eurozone caucusing can put up protectionist barriers and prevent British financial exports from being sent into the rest of the European markets. That is a basic key point. Secondly, I believe that in the culture and honour of the Luxembourg compromise, the rest of the EU needs to recognise the strategic importance of the financial industry to Britain, and give us the ability to impose an emergency break at European Banking Authority level if we believe that a proposal from the EU directly harms that industry.

Under qualified majority voting we have an 8% vote at the EBA, yet Britain represents 36% of EU wholesale financial services markets. We are therefore greatly under-weighted in what we can do to defend our financial services sector, and I urge the Government to make that case strongly in negotiations with the rest of the EU.

The third point is more proactive. The EU focuses its attentions on negotiating free trade agreements mainly for goods, and there is little intra-EU service trading. In spite of British UCITS—undertakings for collective investment in transferable securities—being the most successful financial export ever, that is only within the EU and not externally. The future for growth in financial services lies in big emerging markets such as Brazil and China, and involves not Government bond trading, but basic things such as mortgages, life insurance policies, health insurance and so on. I hope the Government will urge the EU to commit—in return for our consent—to promoting free trade agreements with emerging economies in services, and specifically financial services.

British success in financial services generated more than 1% growth in GDP per annum across all key EU member states during the financial boom. We now need to solve the financial crisis together, but Britain is in the uniquely strong position of being able to gain something back at the same time.

5.57 pm

Mr Brian Binley (Northampton South) (Con): I remember well those long-gone days when we were told that monetary union would bring strength to the EU, be enduring and serve to bring our economies together. By golly, how time does fly, and how truth changes the vision. Recent experience has shown that political ambitions exceeded economic reality, and fault lines were built into the single currency from the start. Structures have been put to the test and, quite frankly, been found wanting.

The problems facing the euro might not have started in financial services, but the crisis has certainly highlighted those fundamental flaws. Sovereign debt might not be limited to the eurozone, but its constraints within the economic and monetary union exacerbated the crisis. Unless Europe gets to grips with those problems, the entire project could disintegrate before our very eyes. That is the situation we are facing. We are debating a desperate attempt to apply sticking plaster to a serious wound. The flaw is inherent; the mistake already made. Membership of the single currency was extended way beyond that initially envisaged, and therein lies the fault, which is not dealt with by any of the measures

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proposed today. Banking union may sound like a measured response, but the creation of a European banking union is a world away from a co-ordinated international response. President Barroso revealed his agenda in his “State of the Union” speech, raising the issue of banking union in the context of a push towards a federal European state. That is the truth of the matter.

Our first priority must be to resist any financial transaction tax. That is not a new idea; in 1984, Sweden introduced a 0.5% tax on the purchase or sale of shares. By 1990, 30% of all Swedish equity trading had moved offshore—more than half of it to London—and the volume of bond trading had declined by 85%. That is the damage that a financial transactions tax can do to this country. It is vital that the Government have the courage to resist it.

Will the Minister expand on the references to fiscal probity that allow for spending on social fairness? Is that a get-out clause for grossly indebted Governments who want to keep spending they do not have? It sounds very like it to me.

The report on EMU accepts that public opinion is key, but that is another way to justify spending taxpayers’ money on propaganda. Our Government have stopped the money-go-round in local government and quangos. It would be totally inconsistent to allow Eurocrats to deploy hard-earned taxpayers’ money to propagate grand visions that have already proved to be failures.

Earlier comments on the document made it clear that fiscal integration is about a continued movement to a federal Europe. I could quote page after page, but I will not bore the House. The truth of the matter is that we need to be sure that our Government’s promises to us are absolutely watertight, fast and hard-held. If they are not, the House will be doing a massive disservice to our children and grandchildren. That is what this measure is about.

I noticed a slight smile on the face of the Minister when I made a point about social well-being. If he looks into it a little more, he might begin to agree with me. If I had the time, I would explain.

Finally, as my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) said, we need to take this opportunity as a base to renegotiate—

Mr Deputy Speaker (Mr Nigel Evans): Order.

6.2 pm

Mr Bernard Jenkin (Harwich and North Essex) (Con): In some respects, this is a modest debate compared with last week’s, although it is worth reflecting that employment in the City, as reported by City AM, has collapsed by more than 100,000 since the peak of 2007. Some of that was self-inflicted, but much of it was inflicted by increased regulation. The Centre for Economic and Business Research reports that employment in the City is set to fall much lower. Most of the jobs are highly paid, high-taxpaying jobs, on which the economy in general and the economy of London and the south-east in particular depend very deeply.

I commend the sincerity of my right hon. Friend the Minister’s approach. He is in a difficult position. The difficulties he is confronting are a microcosm of the conundrum of the UK’s place in the EU. We are not in

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the room, so we cannot function as a positively engaged member of the EU on our current terms of membership, but we are also not negotiating the alternative terms of membership that would protect us from the effects of the treaties we have already signed.

It needs to be pointed out that banking union simply was not envisaged in the Lisbon treaty. We now find ourselves confronted with a new institution and a reform that simply was not regarded as necessary when the Lisbon treaty and its predecessors were signed. The treaty is not fit for purpose for a banking union.

The problem is that no arrangements that nibble at those problems will protect the UK’s interests—a wholesale change in our relationship is the only way to protect them. Sadly, the motion represents the Government yet again passing up a substantial opportunity to start laying the foundations of a different relationship and to start leveraging the renegotiation of our terms of membership. That is a matter of great significance.

Andrea Leadsom: Will my hon. Friend give way?

Mr Jenkin: I give way to my hon. Friend, who made a very able speech.

Andrea Leadsom: I am grateful to my hon. Friend, but I have to challenge him, because I think that the Government are absolutely committed to renegotiating. Why does he think that they are not?

Mr Jenkin: Unfortunately, our party’s leadership does not intend to start substantive renegotiation of our relationship until after 2015, long after this particular opportunity will have passed us by. If we attempt to remediate this measure and its effects on our interests, we will not succeed. This is happening in case after case—the fiscal union treaty is another example.

Mrs Anne Main (St Albans) (Con): Does my hon. Friend agree that we should use every opportunity and not waste any of them? We have an opportunity to make a difference. If we just keep noting everything and do not use our opportunity, that will be another chance gone and the electorate will not forgive us for it.

Mr Jenkin: I am afraid that my hon. Friend is right that failure to get the maximum leverage out of these opportunities means that they will be forgone for ever. We may well get to 2015 and find that all the major decisions to federate the eurozone will have already been taken and our opportunities to then renegotiate will look slim and incredible.

I will close by picking up on the contribution of my hon. Friend the Member for Stone (Mr Cash), who is the Chairman of the European Scrutiny Committee and whose comments add a Götterdämmerung-like quality to this debate. Hitherto, the architects of European integration have, like the gods in “The Ring”, attempted to construct their Valhalla on the basis of principles and the rule of law, yet they are now compromising those very principles, on which the legitimacy of this structure depends, and, in doing so, sowing the seeds of their own destruction.

If this was being done properly—I invite the House to reflect on this—it would be a treaty change and there would be an intergovernmental conference. There would

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be a huge amount of debate about what other changes needed to flow from an intergovernmental conference and we would end up with a whole Act of Parliament, which would have to pass through both Houses of Parliament in this great building. The issue, however, is being debated in a mere 90 minutes on a quiet Tuesday afternoon before the Minister is sent—haplessly, perhaps —to the Council of Ministers to either agree or disagree with these momentous changes.

Major changes are being made in a more casual manner as the European Union becomes more desperate to shore up its previous mistakes. “Macbeth” comes to mind: the worse a situation gets, the more rash and irrational the actors become in defence of the indefensible. I hope that right hon. and hon. Friends will remember this debate, because the move from legality to illegality is a very big step, yet that is what we are witnessing as the Government approach this particular decision. I hope yet that they will see sense and veto the proposal.

6.8 pm

Jacob Rees-Mogg (North East Somerset) (Con): I have a feeling that Christmas has come particularly early this year, because I had the opportunity to speak in a European debate just three hours ago, and to speak twice on Europe in one day is almost as joyful as 25 December.

The Government have a problem and I am sympathetic to them. The report of the European Scrutiny Committee—its Chairman, my hon. Friend the Member for Stone (Mr Cash), spoke brilliantly, as always, and has tabled a sensible amendment—shows that the Government’s problem is that, of the two decisions that they face, the one that they support requires unanimity and the one that they oppose will be decided by qualified majority voting. I have quite an easy solution for them— I think they are looking for a solution—namely that they should use the threat of not supporting what they support to get leverage on the decision that they do not support. As we have heard from the Minister, there is widespread agreement across the House on the things that the Government do not support and on concerns about the European Banking Authority, particularly on voting and caucusing in the voting, and the nature of the European Central Bank, as against other central banks, in relation to the European Banking Authority.

When it comes to caucusing, getting a particular voting arrangement in the European Banking Authority will be no good at all. It will be a temporary palliative, because unless a voting system is devised that gives the UK a permanent veto, which personally I would be all in favour of, but which seems unlikely, then as soon as other member states begin to join the euro—which they are under a treaty obligation to do, with the exception of the United Kingdom and Denmark, as I said earlier— the non-euro member states will be easily outvoted. Therefore, we need to look, with the veto we have got, at the whole system of financial regulation and how it affects the United Kingdom. I understand that total renegotiation of the treaties is not currently being considered. I appreciate that in a coalition with the Liberal Democrats—which includes my hon. Friend the Member for Cheltenham (Martin Horwood), who loves the European Union and everything that comes from it—it is difficult to get a renegotiation that would satisfy Conservatives.

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Martin Horwood: Just to put the record straight for the benefit of Hansard, I do not love everything that comes out of the European Union. I simply regard it as another level of authority with which we must negotiate gently and carefully, rather than necessarily taking the rather Gaullist approach that the hon. Gentleman and his colleagues are taking today.

Jacob Rees-Mogg: I am enormously grateful to my hon. Friend, who gives me an extra minute every time.

This is an important and good opportunity for the Government to get back powers that should never have been given away. It was a great folly to give away financial regulation to the power of the European Union, because as my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) so wisely said, we have much more financial services in this country—I think she gave the figure of 36% for wholesale financial markets in the whole of the European Union that are in the UK. Therefore, we ought to regulate our own affairs and we ought not have delegated that to the European Union. We need to be careful about what is being proposed when it comes to the regulation of what are substantial international banks based in the United Kingdom in their business—which may be subsidiary business—with eurozone countries, because there is obviously a risk that they will find themselves under the auspices of a European regulator when they ought more appropriately to be under the auspices of a British regulator.

I think the Government’s position is quite strong, and I think the amendment is extremely sensible. It is interesting that we learn only through the Financial Times that the proposals that have come forth from the Commission are illegal. We do not learn it from the Government or the Commission; we learn it from an underhand leak, which comes via a newspaper to inform our debates, which is a pity. It would be nice if we could get such information directly to a sovereign Parliament, so that we knew what was or was not legal. Perhaps the Government will consider releasing the legal advice that will guide them—or perhaps ought to guide them—in their approach to this debate.

I would encourage the Government to accept the amendment tabled by my hon. Friend the Member for Stone. I listened very carefully to the Minister—I always do: he is a great Minister, who is much admired on this side of the House, and I imagine in other parts too. There was nothing he said which in essence contradicted my hon. Friend’s amendment, so I ended up thinking that what we were really debating was which way up an egg should be eaten—whether it should be the big side or the little side up. We are united as egg eaters in this context, and we think it would be “egg-cellent”—if I may carry on with this theme—to support my hon. Friend’s amendment, to which I was pleased to add my name, because it provides us with a solution in our negotiations in Europe and a clear way forward.

Several hon. Members rose

Mr Deputy Speaker (Mr Nigel Evans): Order. I am calling the wind-up at 6.24 and we have two speakers left.

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6.14 pm

Mr Brooks Newmark (Braintree) (Con): I am delighted to follow my hon. Friend the Member for North East Somerset (Jacob Rees-Mogg), who is perhaps one of the most articulate Members on the Government Benches. I am not going to argue the whys and wherefores of whether we should bring financial regulation back to this country. That is an important question, and I totally agree with my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) on it, but I am going to argue on the narrow question before us—namely, the substantive motion and the amendment.

As a non-eurozone member, we will not be participating in European banking unification. I agree, however, that we need to ensure that the measures taken by our European partners do not adversely affect British interests, particularly in the banking and financial services sector, given its importance to UK plc. The City of London is the pre-eminent financial services centre not only in Europe but in the world, and we want it to remain so. Remaining globally competitive is critical to the United Kingdom and to the eurozone, and it is important that the single supervisory mechanism for the eurozone should function effectively. As long as we remain outside the eurozone, the mechanism will be aimed primarily at eurozone banks and not at our own financial institutions. As many colleagues have pointed out, however, there could be unintended consequences at some future date that could have an impact on us.

The Minister has given us assurances today that the Government will seek to secure sufficient changes to the European Banking Authority voting arrangements to protect the interests of member states, such as the UK, that are not members of the eurozone and that do not choose to enter into the proposed co-operation arrangements. I am therefore happy to support the Government’s substantive motion.

My hon. Friend the Member for Stone (Mr Cash) has tabled an amendment to the motion. I congratulate him on his leadership of the European Scrutiny Committee and on his tenacity, perspicacity and overall determination to protect Britain’s interests. He has always been a strong defender of our interests and I congratulate him on that. In fact, I wholly endorse the opening line of his amendment, in which he welcomes

“the Government’s desire to seek safeguards for the UK”,

and the reasonable tone that he adopts in asking the Government to use their best endeavours. That is reasonable, and it is not didactic. I have a problem with the second part of my hon. Friend’s amendment, however, in which he calls on the Government to use their veto to

“ensure that the powers of the Governing Council of the European Central Bank are not unlawfully delegated to the Single Supervisory Mechanism without an amendment of the treaties”.

We have heard from the Minister’s mouth today that we will not proceed unless the arrangements are legally robust. I have had no insights into the matter, and I agree with my hon. Friend the Member for North East Somerset that it would be good to see the leaked document, but, unlike many others, I have not had the privilege of doing so. I fear, therefore, that the amendment is somewhat tautological, if not unnecessary, in that the Government would neither support an illegal arrangement nor table a motion that was not in order. I will therefore put my faith in the Minister’s assertion that there is nothing

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illegal about the proposed arrangements and that he would not waste Parliament’s time by proposing anything that was illegal. I will therefore support the Government’s motion and vote against the well meant but unnecessary amendment that my hon. Friend the Member for Stone has put before us today.

Several hon. Members rose

Mr Deputy Speaker (Mr Nigel Evans): Order. I call Mr John Baron, and I ask him to sit down no later than 6.24 pm.

6.19 pm

Mr John Baron (Basildon and Billericay) (Con): Like many other Members, particularly on the Government Benches, I have a healthy respect for the Ministers sitting on the Front Bench this evening—the Financial Secretary to the Treasury, my right hon. Friend the Member for Tunbridge Wells (Greg Clark) and the Minister for Europe, my right hon. Friend the Member for Aylesbury (Mr Lidington)—but I believe that they are trying to defend the indefensible. I find it hard to understand how a Government who are prepared to use the veto, and who have used it in defence of City interests, can be prepared, by passing these regulations unamended, to enter negotiations without being able to assure the House that cast-iron guarantees are in place to ensure that qualified majority voting will not be allowed adversely to affect the City.

I have asked the Minister at the Dispatch Box where those concrete guarantees are. Unfortunately, I have not heard anything to convince me that they actually exist. The idea that the European Central Bank would not be allowed to overrule or override non-members of the eurozone is, I am afraid, not a strong enough guarantee. I do not see where that stands up, particularly given that the legal opinion that has been sought and confirmed brings that sort of red line very much into dispute. There is no guarantee there at all. I very much look forward to hearing what the Minister has to say about what other concrete guarantees exist in defence of the City. Going into negotiations or allowing these regulations to pass without a clear idea of what the guarantees are could, I suggest, turn out to be a fool’s errand.

We all know how the eurozone has got into this mess. The eurozone went for monetary union, courtesy of the single currency, but we all know that there cannot be monetary union without fiscal union, so now it is playing catch-up. Easy credit and easy money have led to Governments borrowing too much, and the eurozone is trying to sort out this mess.

I have to say to the Minister, if he is listening, that having just returned from Germany with the Foreign Affairs Committee and having asked about the possible solution, I know that fiscal union or fiscal compact is definitely on the table—despite the fact that most members of the fiscal compact that is coming into effect next year have already broken the parameters of the financial limits set. The universal answer, whether one spoke to politicians of the left or the right or to trade unions, businesses or lobby groups, was more integration and more political union in order to make the fiscal compact work. We are on a collision course with the proposals that are now coming out of the eurozone.