CHAPTER 7: summary of conclusions and
recommendations
Chapter 3: Implementation of
the 26 October 2011 agreement
142. We are concerned about the extent of uncertainty
that remains in the crucial area of bank recapitalisation. The
26 October agreement provided few details on exactly how recapitalisation
will be achieved, and though the agreement was right to warn banks
not to seek to reduce debt ratios by deleveraging, it is not clear
whether and how they can be prevented from doing so—indeed,
the long time period offered seems to facilitate rather than guard
against this. A sustained restriction of credit, particularly
in the current economic climate, would be highly damaging. (paragraph
44)
143. Given the cost to the global economy of
the prolonged recession which could follow sovereign defaults
and further bank collapses, and therefore the cost to all countries
of a failure to ease the euro area crisis, there remains an urgent
need to establish a credible and well-financed system of rescue
funding. Primary responsibility lies with the euro area countries.
However, given the global implications it is necessary for the
international community, including the UK, to contribute through
the IMF. We welcome the Government's willingness to contemplate
this. (paragraph 50)
144. It is imperative that rapid progress is
now made in putting flesh on the bones, and drawing to a conclusion
the outline agreements reached in October 2011 on Greek debt write-down;
bank recapitalisation; and the financing of the European rescue
funds. Even this package, though necessary, is likely on its own
to prove insufficient. (paragraph 53)
Chapter 4: Other policy responses
145. The ECB has already taken unprecedented
steps in relation to the euro area crisis through the purchase
of sovereign bonds in the secondary debt markets, and more recently
through a massive operation to refinance European banks. There
has been pressure for the ECB to play an even greater role, which
the ECB has thus far resisted, in particular citing the need to
respect the Treaty provisions that bar the direct monetary financing
of governments. In our view, although the ECB should not be regarded
as a panacea, additional ECB intervention is likely to prove essential,
at least to preserve the functioning of credit markets and thus
to support economic growth, if progress is to be made in resolving
the euro area crisis. (paragraph 64)
146. It remains to be seen whether a 'eurobond'
could be designed in such a way as to meet the concerns of nations
such as Germany, so that it will not lead to a risk of moral hazard
nor lower the cost of servicing the public debt for some countries
in the euro area at the expense of a considerable increase for
others. The Commission's proposals are at an early stage of development,
and, though 'eurobonds' could relieve pressure in the bond market,
they are only likely to become a mechanism available for use in
the medium to long term. The lack of reference to 'eurobonds'
in the 9 December statement might be taken to suggest that their
introduction remains a distant prospect. Yet the question of whether
they are a necessary step towards solving the euro area crisis
needs to be addressed. (paragraph 70)
Chapter 5: The December 2011
European Council and the proposals for treaty change
147. We express the hope that the assessment
of experience with implementation of the proposed treaty, provided
for in Article 16, will encompass a reflection on this major development
in the fiscal policy of euro area states. (paragraph 109)
148. It is vital that, while the euro area states
take the steps they consider necessary to strengthen the euro,
including on fiscal integration, matters relating to the internal
market remain the preserve of all 27 EU Member States. We welcome
the disclaimer on the face of the treaty which is designed to
ensure that this point is respected. (paragraph 111)
149. The proposed treaty raises a number of other
questions, particularly concerning the relationship between it
and the EU treaties and laws made under those treaties; and the
proper role of EU institutions. The history of the institutional
development of the European Union is characterised by pragmatic
flexibility and 'finding a way', suggesting that some of the rough
legal edges of the proposed treaty will be softened over time.
With the United Kingdom reducing its objection to the use of the
EU institutions under the proposed treaty, it might be argued
that this process is already underway. But even so, the lack of
clarity about whether it is legitimate for the proposed treaty
to confer new functions on institutions of the European Union,
and the extensive overlap between the provisions of this treaty
and functions which have already been imposed by EU legislation,
is undesirable. The treaty aims to bring certainty about the fiscal
rules that euro area states will follow, and anything that risks
creating new areas of confusion should be avoided. Therefore the
objective of bringing these provisions within the scope of the
EU treaties, as provided for in Article 16, is one which we consider
is in the interests of all Member States including the United
Kingdom. (paragraph 112)
150. It is unacceptable that the Government have
not released appropriate details of the safeguards which the Prime
Minister sought at the December European Council. This makes it
impossible to form a balanced judgement about the outcome. Coming
to the present, we invite the Government to indicate what necessary
safeguards they think have yet to be achieved, and what provisions
(if any) in the proposed treaty are objectionable to them. (paragraph
122)
151. The United Kingdom Government, together
with the other Member States of the Union, and the EU institutions,
must devise a means of securing the fiscal integration desired
by some of the euro area Member States while at the same time
protecting the integrity of the single market, including its provisions
for financial regulation, as an engine of economic growth for
all 27 Member States of the Union. (paragraph 127)
152. We agree with the assessment of the United
Kingdom Government that the "optimum outcome" at the
December European Council would have been an agreement at the
level of all 27 EU Member States, with the interests of the United
Kingdom protected. But the creation of mechanisms outside the
EU treaties risks causing confusion, and we have sought to identify
some of these issues in this report. Shifting discussions outside
the main EU channels to forums where the United Kingdom has no
voice also risks marginalising the UK over time. (paragraph 128)
153. For the longer term, we note that the proposed
treaty states in Article 16 that it remains the intention for
its provisions to be folded in to the main EU treaty framework.
We can see no reason in principle why this should not in due course
be achieved. (paragraph 129)
Chapter 6: Beyond the short term
154. National governments and EU institutions
have sometimes struggled to keep up with the pace of events during
the long euro area crisis. We do not underestimate the massive
challenges facing the EU and the euro area in particular, and
there is a need for effective and proactive leadership both from
the EU institutions and Member States, in the interests of the
wider Union. (paragraph 134)
155. It is clear that improved budgetary discipline
is necessary in order to make progress in resolving the euro area
crisis, but ultimately the resumption of sustainable economic
growth will hold the key: both in general terms across the EU,
and in facilitating attempts to resolve the serious imbalances
in competitiveness between different countries in the euro area.
Therefore, while we acknowledge the great difficulty of devising
measures to support economic growth in a period of austerity,
we share the concern of the Minister for Europe that the potential
of the development of the single market to enhance growth has
faded from view during the crisis. We are heartened by the emphasis
on job creation and the single market at the EU summit on 30 January,
but the real challenge for policymakers will be the sustained
implementation of measures which are both effective in developing
the single market and thus supporting economic growth, and which
do not threaten the drive to improve budgetary discipline. (paragraph
141)
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