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House of Lords

Thursday, 16 February 2012.

11 am

Prayers-read by the Lord Bishop of Lichfield.

Fuel Poverty


11.06 am

Asked by Lord Ezra

The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Lord Marland): My Lords, the coalition is committed to helping people, especially in low-income vulnerable households, to heat their homes more affordably. The Government commissioned Professor John Hills to carry out an independent review of the fuel poverty target and definition in the context of ensuring that available resources are focused where they will be most effective in tackling the problems underlying fuel poverty. Professor Hills published his interim report on 19 October, and a final report will be published shortly.

Lord Ezra: My Lords, bearing in mind that some 5 million homes, over 20 per cent of all the homes in Britain, are in fuel poverty as presently defined, can the Minister indicate the annual rate at which homes are currently being taken out of fuel poverty? Secondly, do the Government remain committed to the objective of eliminating fuel poverty by all reasonably practical means by 2016, as laid down in the Warm Homes and Energy Conservation Act 2000?

Lord Marland: It is very good to see the noble Lord in his place. Of course, his position on this is very well recognised, having been what I was brought up to know as "King Coal". I am grateful that he should ask such important questions.

Clearly, since 2005, fuel poverty in the UK has gone up from 2.5 million homes to 5 million now. This is a very serious problem with which all of us wish to grapple, particularly in these times of economic difficulty. The Government are committed to that. I do not want to pre-judge Professor Hills' report, but we initiated it and we look forward to it.

On the noble Lord's second point, of course we are committed to reducing fuel poverty to nothing. In an ideal world, we would be doing it now. We have reworked the definition, which I think is fundamental. However, until we get the report we will not be able to comment much further on that.

Baroness Lister of Burtersett: My Lords, what is the Government's response to the "End the Big 6 Energy Fix" campaign launched last week by Compass-I declare an interest as the chair of its management committee-and the Independent for a ring-fenced

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levy on the big six energy companies that could be used to tackle fuel poverty through making homes more energy efficient?

Lord Marland: It is difficult to attack the big six. EDF, which announced its results today, makes no margin at all on delivering domestic supply to homes. We must be very careful when we attack these companies, which are genuinely trying to supply and are, of course, struggling with major increases in global oil and gas prices outside their control.

Of course, the Government have a load of initiatives for improving things. Reducing demand at home is absolutely fundamental, as the noble Baroness will know better than I do. The Green Deal will be fundamental to that. These various initiatives will try to protect the consumer. Believe you me, the consumer is at the heart of all our policy-making and, at this time, needs to be.

Lord Lawson of Blaby: My Lords, perhaps I may be of assistance to my noble friend by suggesting to him a way in which he could reduce fuel poverty at a stroke-abolishing the whole raft of measures, from the carbon floor price to the renewables obligation and massive subsidies for wind power, all of which are designed to push up energy costs at the expense of fuel poverty, British industry and the British economy, to no effect in the absence of a global decarbonisation agreement, which the Minister knows perfectly well is not on the cards.

Lord Marland: I am pleased that the noble Lord felt he was being of assistance. I am not entirely sure that it quite fits with my dictionary's definition of "assistance", but I take on board what he said. He is bowling a straight military medium over and we are quite used to it. I shall consider the word "assistance".

Baroness Smith of Basildon: My Lords, some of the people who I most worry will not be able to afford the heating they need are those on pre-payment meters. The noble Baroness, Lady Stowell, told me in a Written Answer on 19 February that pre-payment meter customers now pay on average £20 less than standard credit customers for gas and electricity. However, Charles Hendry, the Minister in the other place, told MPs that in 2011 pre-payment meter customers would pay on average £90 more than direct debit customers and a maximum of £170 more. Therefore, pre-payment meter customers pay more. Will the Minister explain why pre-payment meter customers pay less for their energy but so much more for their bills, and what can be done to ensure that those who have the least are not paying the most?

Lord Marland: I will not get into the crossfire of the detail on that because I do not have the facts in front of me. However, we all know that energy bills have gone up. They will obviously affect pre-payment meters because you have to put more in to supply the energy bills. The big point that I am making here is that we are completely focused on reducing energy bills, which is why we have a raft of measures. The warm home

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discount is worth £1.1 billion. The core group rebate of £120 goes to 600,000 pensioners. There is the winter fuel allowance of £200. Cold weather payments worth £93 million have already been paid this winter, and £100 million has been paid under Warm Front. A huge number of initiatives are in place to protect the consumer and we are very committed to doing so.

Lord Jenkin of Roding: My Lords, in his first Answer my noble friend mentioned the Green Deal. Not least of the Green Deal's attractions was that the up-front costs of insulating homes and other energy-saving measures are met by the private sector providers. Can the Minister reassure the House that, in working out the Green Deal, there will be enough providers to make enough money available to achieve the Government's targets?

Lord Marland: The Green Deal is a very important private sector initiative, of which the Government have been the enabler. I am very grateful, incidentally, for the commitment from Peers on all sides of the House to ensuring that the Green Deal passed through legislation in such a well thought-out and well devised way. The Green Deal is an enabler and a marvellous opportunity for the private sector to provide energy to homes. It is for the Government to enable it further and pump-prime it to make sure that it happens.

Lord Campbell-Savours: My Lords, would not a rising block tariff system of energy pricing help low-income families?

Lord Marland: It is a point that the noble Lord has made before. He has great knowledge of it. It is a point that several noble Lords have made to Professor Hills. I do not want to prejudge what he will say but I am very grateful to those Peers who have involved themselves in dialogue with him and made a number of such points.

Gypsies and Travellers


11.13 am

Asked by Baroness Whitaker

Earl Attlee: My Lords, the Government published their new draft planning policy for Traveller sites for full public consultation last year. The consultation included a question about whether the current definition of Gypsies and Travellers for the purposes of planning policy should be retained. The Government are currently considering all responses to the consultation on their new draft planning policy.

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Baroness Whitaker: My Lords, I am grateful to the Minister for his Answer as far as it goes. However, does he agree with me that the current definition forces ethnic Gypsies and Travellers who want to live in caravans according to their traditional way of life and seek planning permission for that purpose to demonstrate that they pursue a nomadic way of life, when current legislation and the lack of authorised sites makes it almost impossible for them to do so and consigns them to low-paid and erratic employment? For instance, a Gypsy who practised a profession that required living in one place-such as a doctor or an architect of my acquaintance-could not get planning permission for a caravan site on land that he had bought. Does the noble Earl agree? Secondly-

Noble Lords: Too long!

Earl Attlee: My Lords, the noble Baroness's description of the current definition is right. Some of the responses to our consultation on our draft new planning policy for Travellers' sites suggested that there should be a separate consultation on the definition. The Government are considering all the responses to the consultation. We shall have to wait to see what emerges from that.

Lord Laming: My Lords, does the noble Earl accept that one of the greatest challenges in respect of those who live a nomadic life is to secure continuous and proper education for the next generation-the children-so that they can have not only a choice in their lifestyle in the future and settle into society but fulfil their potential as human beings?

Earl Attlee: My Lords, the noble Lord is absolutely right, which is why I saw a separate briefing from officials at the Department for Education.

Lord Tebbit: My Lords-

Lord Avebury: My Lords-

Lord McNally: My Lords, shall we hear from the noble Lord, Lord Avebury, first?

Lord Avebury: My Lords, can we now assume that there will be a further consultation on the revised national planning policy framework that incorporates a version of the Traveller document, as recommended by the CLG Select Committee? If so, will the new composite document include a revised and more inclusive definition of Gypsies and Travellers for the purposes of both housing and planning which is based on the Housing Act 2004?

Earl Attlee: My Lords, I am sorry that I cannot be more helpful to my noble friend but we will have to wait to see what the Government's response is. However, we will not have to wait too long.

Lord Tebbit: My Lords, should there not be an assumption that those of us who live at a fixed abode cannot have the advantages of also living in a caravan

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and wandering around? Equally, should not those who want to wander around and live a nomadic life accept that there are disadvantages to it and not expect us to divvy up in some way or another to subsidise them?

Earl Attlee: My Lords, the noble Lord makes an interesting point. However, we all know what the problem is: poor education among Travellers; poor health outcomes; low life expectancy; and severe discrimination. We have policies to mitigate all these. However, at strategic level, successive Governments do not appear to understand what legitimate economic activity consistent with their culture Travellers should be engaged in. I will be taking up that matter with my right honourable friend the Secretary of State for Communities and Local Government.

Baroness McIntosh of Hudnall: My Lords-

Lord Richard: My Lords-

Lord Kilclooney: My Lords-

Lord McNally: Perhaps we could hear from the noble Lord, Lord Richard.

Lord Richard: My Lords, does not the problem go rather deeper than the way in which the Minister seems to be approaching it? The noble Lord, Lord Tebbit, put his finger on one of the issues. Is not the fact that there are not enough sites in this country the real reason why so many people who want to live a nomadic life cannot do so? Therefore, they have to go into static accommodation, which they probably do not want to be in anyway, and which no doubt has planning problems and upsets the neighbours. However, the real problem here is that there are not enough sites for nomadic peoples to go to.

Earl Attlee: My Lords, the noble Lord is right in his analysis. The problem is to find a long-term solution, which is why I referred to the problem of economic activity. Without legitimate economic activity for Travellers, local communities will not be keen on having Traveller sites near them. That is the nub of the problem.

Lord Kilclooney: My Lords, during this period of consultation, will the Government look further at the apparent ease with which foreign Gypsies and Travellers enter the United Kingdom?

Earl Attlee: My Lords, I am not sure exactly which problem the noble Lord refers to, because there are a few, but I will communicate with him outside the Chamber.

Lord Boswell of Aynho: My Lords, as a matter of equitable treatment, is it not reasonable that if we are asking Gypsies and Travellers to meet their obligations under the law we should at the same time devise the most sensitive and comprehensive measures of their nature and definition, so that they can avail themselves of their proper rights as a minority-and they should receive those rights as well as meet their obligations?

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Earl Attlee: I broadly agree with what the noble Lord is saying. Everyone has rights but they also have obligations-and the obligations are to comply with the law.

Baroness McIntosh of Hudnall: My Lords, I wonder whether the Minister could return to the question from the noble Lord, Lord Laming. The noble Earl said that he had received a briefing from the Department for Education on the issue raised by the noble Lord. Is he prepared to share with the House what the briefing says?

Earl Attlee: My Lords, I will have to write to the noble Baroness.

Female Genital Mutilation


11.21 am

Asked by Baroness Tonge

Baroness Verma: My Lords, information on the number of police investigations involving female genital mutilation is not collected centrally. However, the Government work closely with the police and the Crown Prosecution Service to ensure that they are equipped with guidance and information to deal with cases of FGM, and that they are clear on their legal powers to protect women and girls from this abhorrent practice.

Baroness Tonge: My Lords, I thank the noble Baroness for that Answer. Is she aware that between November 2009 and November 2011 there were 63 alleged cases reported to the Metropolitan Police which never reached prosecution? Will she undertake to ask the Government to set up a technical review to find out why these cases do not come to prosecution in order to ensure that proper training is given to doctors and midwives to stop this practice in this country? Does she agree that successful prosecutions are the only way to deter families from perpetrating this terrible mutilation on their daughters?

Baroness Verma: My Lords, I can inform the noble Baroness that in September 2011 the CPS launched a female genital mutilation guidance pack that has been developed to assist prosecutors in what she knows are extremely complex cases. We are intending to monitor that guidance over 12 months and we will evaluate the results. The Government are of course also working closely with schools, health service staff, charities and community groups so that through the multi-agencies we are able to raise as much awareness as we can. As to the noble Baroness's point on prosecutions, this is an issue that at the end of the day will achieve results only when the communities themselves decide really to engage with bringing forward perpetrators.

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Baroness Rendell of Babergh: My Lords, is the Minister aware of the unwillingness of young girls to go into court and give evidence? FGM is an abhorrent practice but is not regarded as such by many of the young girls themselves and by those who advise them. There are many who tell them that if they are not mutilated they will not become real women, they will not find a man to marry them, and they are bullied and victimised by their contemporaries. Is the Minister further aware that if they go into court they may be required to testify against their own parents or family members and people they have known and had a close relationship with all their lives?

Baroness Verma: I think the noble Baroness has hit the nail on the head. That is why it is so difficult to get prosecutions. There is also an embedded cultural issue. Until we reach out and get through to the older women in those communities and get them to respond to the young girls who are often unwilling to undergo these practices, we will never get to the nub of the problem. However, I must say that I have come across young people-both men and women-from those communities where FGM is being practised who are beginning openly to stand up to say that they oppose it. That is a positive sign for us all.

Baroness Morris of Bolton: My Lords, two or three years ago I attended a round-table multi-agency discussion in Birmingham on female genital mutilation. One of the main problems in getting the message across to some insular communities is the language barrier and the lack of female interpreters. There was real concern that many male interpreters do not convey the fact that FGM is a crime with serious consequences. Can my noble friend say what the position is on interpreters and whether this is still a problem?

Baroness Verma: I cannot answer my noble friend directly on the position of female interpreters because that information is not held centrally. However, I can reassure her and your Lordships' House that the police, the Crown Prosecution Service and all those involved in the issue take it incredibly seriously and are working with the sensitivity that it requires. I repeat that unless the communities themselves are willing to engage with outside organisations, this will remain a problem.

Baroness Howarth of Breckland: My Lords, I recently attended an international seminar in Brussels which was focused, as the noble Baroness suggests, on how communities can themselves help with this issue. What is being done to engage the communities themselves? How can we learn from some African countries, which are taking work into the communities, rather than trying to find ways ourselves and not succeeding?

Baroness Verma: The noble Baroness raises an important point about engagement with the communities. We have set up an FGM fund of £50,000 through which we are helping to fund 10 organisations on the front line that are helping to prevent FGM within those communities. It is important that the results and the influences come from within the communities, so

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we are engaged with working closely not only with the young people through school education but with the older generation through community groups.

Baroness Scotland of Asthal: My Lords, is it not also of critical importance for victims to get appropriate help and support? Is it not therefore the role of the Crown Prosecution Service to support those victims so they are enabled to give their evidence? Are the specialist prosecutors who deal with violence against women still able to do that, bearing in mind the cuts? Is that not something that we should pursue with greater vigour?

Baroness Verma: The noble and learned Baroness is absolutely right. That is why the Home Office has ring-fenced £28 million-so that we have those specialist services in place and so that those victims are able to access as much support as we can possibly give them, not just in terms of health and social services but being able to provide accommodation and all the other things that they require if they want to move from the communities that are imposing FGM on them.

Baroness Hussein-Ece: My Lords, did my noble friend see the excellent report on "Newsnight" last night on this barbaric practice in Egypt? I was shocked to learn that 90 per cent of women, both Christian and Muslim, are subjected to this awful custom. Is she aware whether the schools in this country are playing their role? Some groups who campaign on the ground and work with young women and their families tell me that the Department for Education says that it does not collate any information that would help in this matter and that it is not really a problem, but schools know when girls are taken out of the country to have this procedure performed.

Baroness Verma: I did not watch the programme last night because I was here, sitting in the Chamber.

A noble Lord: Working.

Baroness Verma: Working, yes. However, I did hear about the programme this morning and people have said how appalled they were by what they saw. The noble Baroness asked about schools. Some 80,000 leaflets and posters have been distributed among schools and healthcare services. But the noble Baroness is absolutely right: we need to do a lot more.

Sudan and South Sudan


11.30 am

Asked by Lord Chidgey

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The Minister of State, Foreign and Commonwealth Office (Lord Howell of Guildford): My Lords, we have not yet had independent confirmation of the bombings in the Jau area. Although we note South Sudan's claim that Jau is within its territory, the fact is that both countries claim it is theirs. Whatever the case, we condemn all indiscriminate bombings that could affect civilians. It was at least encouraging that on the same day the two countries signed their non-aggression pact. They also agreed to move ahead with the establishment of a joint border mechanism, consisting of troops from both armies and from the United Nations Interim Security Force for Abyei, to oversee a demilitarised buffer zone. We urge both Governments to make good on that commitment now.

Lord Chidgey: I thank my noble friend for that Answer. However, does he not share my concerns that the apparent bombing of Jau is in breach of the non-aggression agreement signed the day before and that in fact it follows earlier attacks with bombers and tanks? These human rights violations have apparently been committed-there is compelling evidence of this-by aircraft and tanks sourced from Russia and China, which leads into my first question. Are our Government supporting a call in the UN to suspend all international arms transfers to the whole of Sudan? Is the Minister aware that the director of the International Organisation for Migration has made it very clear that it is impossible to move the half a million people planning to return to South Sudan by Khartoum's 8 April deadline? Therefore, will the Government press very strongly for humanitarian aid workers to be given access to these camps and for the returnees' deadline to be extended?

Lord Howell of Guildford: My noble friend, who is considerably closely acquainted with these issues, has raised a number of them with me. On his last point concerning the returning refugees, this is potentially a very serious problem, particularly if the Khartoum Government insist on a deadline for their return, which we utterly reject. Of course we want to see humanitarian access for the refugees in every possible way and we keep pressing on that issue.

On the other matters that my noble friend raised, we have achieved a Security Council statement at the UN but, frankly, the prospect of getting a substantial measure at the UN Security Council is just not good at the moment-the agreement is not there. There is of course an embargo on arms to the whole of Sudan-the north and the south-and that remains in place. However, while my honourable friends and other countries are working day and night to achieve more movement, I echo and share my noble friend's realism that progress is very slow and that the commitments are not being adhered to.

Lord Alton of Liverpool: My Lords, is the Minister aware that last Thursday, speaking at Westminster, the UK special representative for Sudan and South Sudan estimated that in Southern Kordofan some 300,000 people have now been displaced as a result of the aerial bombardment campaign by Khartoum? Is he also aware that on Friday last the United Nations relief

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agency and refugee service said that some $145 million would be needed to deal with that crisis? In a Written Answer on 21 June last, the Minister said:

"Reports of such atrocities will have to be investigated and, if they prove to be true, those responsible will need to be brought to account".-[Official Report, 21/6/11; col. WA 294.]

In November, he said that,

What progress is being made to bring to justice those responsible for this manmade catastrophe and to get access to those areas of Kordofan?

Lord Howell of Guildford: The short answer to the noble Lord is: not enough progress. The special representative to whom he refers, Michael Ryder, is at this moment back in Addis Ababa seeking to get the negotiations within the context of the African Union High-Level Implementation Panel process going again. It is a constant struggle and progress is very slow.

On the particular aspects of the increasingly horrific humanitarian situation in Southern Kordofan and in the Blue Nile area, I am advised that the Office for the Coordination of Humanitarian Affairs, under the guidance of our former colleague the noble Baroness, Lady Amos, does not for the moment want to press for cross-border access either to Blue Nile or to Southern Kordofan because of the impact that that would have on wider humanitarian activities in Sudan. However, it continues to press for cross-line access to all areas of Southern Kordofan. We are supporting it in that approach but we are, of course, up against the continual denial by the Khartoum Government of proper access by humanitarian agencies. It is a difficult situation.

The Lord Bishop of Exeter: My Lords, does the Minister agree that crucial to the future stability and security of South Sudan will be assistance towards building effective bilateral trade, security and political relations with its neighbours and the wider east African region? Can he say what DfID is doing to build capacity in terms of good governance systems and structures, strengthening the east African community and supporting South Sudan in its expressed desire to join the Commonwealth?

Lord Howell of Guildford: The answer to the right reverend Prelate is that DfID is doing a great deal. It is putting many millions in infrastructure aid and technical support into this new, young nation of South Sudan and into better relations and connections with the whole east African community. The prospects in the long term are very good, but the prospects in the short term are extremely bad, not least because there is, at present, a total block for various reasons on the sale and transfer of oil from South Sudan, where most of it lies, through the pipelines to the north, where it has to be distributed. That, of course, is slicing the revenue of South Sudan almost to zero. We have to overcome these short-term difficulties, but longer term we ought to be able to build a new and more prosperous east African community, which would certainly include South Sudan.

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Business of the House

Timing of Debates

11.36 am

Moved By Lord McNally

The Minister of State, Ministry of Justice (Lord McNally): My Lords, I beg to move the Motion standing in the name of my noble friend on the Order Paper.

Lord Barnett: My Lords, before we turn to the instruments, which I am sure are very important, perhaps I could ask the noble Lord about an Urgent Question that I raised some weeks ago on car park access for Members of the House. I was promised then that there would be a review on 7 February. I gather that the committee met on that day but we still have not seen exactly what happened. Can the Minister tell us why it is being kept secret?

Lord McNally: My Lords, I think that the term "secret" is rather emotive. As I understand it, the Chairman of Committees, who is a paragon of open government, held a meeting and the minutes will be published in the usual way.

Lord Grocott: My Lords, perhaps I can raise an issue with the Deputy Leader. I have put down a Written Question on this but this is the first opportunity I have had to put an Oral Question to him about the Business of the House.

For a fortnight, we shall be in the rather bizarre situation of having our bicameral Houses of Parliament effectively sitting as a unicameral system as there are separate recess dates for the Commons and the Lords. I find that inexplicable, partly on the grounds that we are at the stage of business when a lot of ping-pong takes place, which is inevitably delayed because of this, and partly because there are occasions when we cannot get Royal Assent to Bills because the two Houses are not sitting. There is also a cost involved and a lot of inconvenience to people who have not been able to arrange the normal cross-party and cross-House meetings during this period. Can the Deputy Leader give us an explanation for what, on the face of it, seems to me to be a rather bizarre decision to have made?

Lord McNally: The noble Lord is right that it is usually good to synchronise the dates. However, I am informed that they were announced last October and that there were no objections in either House. As the noble Lord put down a Written Question, I am sure that a considered Written Answer from a higher grade than mine will give him the explanation.

Lord Campbell-Savours: Was the director of facilities not consulted before the decision was taken? Surely he works to a budget and should know-and should have been asked-whether this was an efficient use of resources.

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Lord McNally: I have an explanation here. The Lord Chairman has already made it clear that no extra costs are involved; the two Houses can sit independently. Clearly, the matter will be best dealt with by hearing the Answer to the Written Question of the noble Lord, Lord Grocott, rather than by lobbing a verbal question at me on a Thursday morning.

Motion agreed.

Social Security (Contributions) (Re-rating) Order 2012

Social Security (Contributions) (Limits and Thresholds) (Amendment) Regulations 2012

Guardian's Allowance Up-rating Order 2012

Guardian's Allowance Up-rating (Northern Ireland) Order 2012

Tax Credits Up-rating Regulations 2012

Government Resources and Accounts Act 2000 (Audit of Public Bodies) Order 2012

Motion to Refer to Grand Committee

11.41 am

Moved by Lord McNally

Motion agreed.

Arrangement of Business


11.41 am

Lord Wallace of Saltaire: My Lords, 41 speakers signed up for the debate. In spite of the wealth of expertise and experience, and the diversity of opinions, may I suggest that if all contributions other than the opening and closing speeches are kept to a maximum of nine minutes, the House may rise at its normal Thursday time of before 7 pm?

EU: Recent Developments

Motion to Take Note

11.42 am

Moved by Lord Howell of Guildford

The Minister of State, Foreign and Commonwealth Office (Lord Howell of Guildford): My Lords, I hope that noble Lords will welcome the opportunity for a European Union debate in the light of the very rapid changes and developments in the European Union, and that we will be able to bring to bear the accumulated

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wisdom of your Lordships' House on how we should proceed in the interests of this nation and of European strength and unity in the coming weeks and months.

Although the global pattern of influence, power and wealth is fast changing, Europe remains our neighbourhood and our largest immediate market. Obviously it is in a stable, prosperous and vibrant neighbourhood that we want to live within the European Union, on terms of close co-operation and friendship with our neighbours. It is therefore in Britain's clear, immediate interest to see our neighbours' problems sorted out, notably the present eurozone tangles. These are having a chilling effect not just on the eurozone but on our economy and the global economy, including even the great new markets of the emerging world on which we increasingly depend.

Addressing the eurozone problems in a realistic and sustainable manner is one of the best ways in which the conditions for renewed economic dynamism can be found and secured, both here and across the whole European economic space. The package of measures agreed by the European eurozone states in October last year set out the immediate steps that must be taken if the eurozone is to hold together and endure. Europe's banks must be properly capitalised; the uncertainty in Greece must be brought to an end, which we hope will happen soon-and without utterly destroying that noble country; and a firewall must be built that is strong and high enough to deal with the full scale of the crisis.

In the longer term, much more will be needed. Proper fiscal discipline built into the system will be the only path that goes forward for the eurozone. This is the inevitable consequence of the decision taken in Maastricht in 1992 to set up the single currency area, to which the United Kingdom did not sign up, and outside which we thankfully remain. For those inside the area, it was always the hope that, following monetary union, greater fiscal discipline would indeed somehow follow and be achieved. It was deviations by several states from this hoped-for path of fiscal discipline that built up into the current eurozone crisis, for which new rules on closer fiscal integration aimed at trying to correct the problem had to be hastily hammered out over recent months.

At the December European Council, the issue was whether these new rules aimed at closer fiscal union should be incorporated in the European Union treaties or implemented through an intergovernmental agreement. My right honourable friend the Prime Minister went to the European Council prepared to agree a treaty of all 27 countries, but only if there were proper safeguards in place to ensure that the integrity of the single market was preserved. They were not an opt-out for the UK, as some have suggested; they would have applied to the European Union as a whole, ensuring that the basic building blocks of the single market-that is, a level playing field upon which competition takes place-were properly protected in all member states. These safeguards were not acceptable to some, and so the Prime Minister vetoed the proposal to have a treaty change for all 27 member states. To have incorporated the changes in the intergovernmental

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agreement into the EU treaties as a whole now without proper safeguards would have been the effect of signing up in December.

Lord Lea of Crondall: I am sorry to interrupt so early in the noble Lord's introduction, but he mentioned safeguards. Some parts of the Government seem to say that those safeguards were solely to do with the City of London. Does that mean that the rest of what was agreed on closer economic and monetary integration would have been quite okay?

Lord Howell of Guildford: Not necessarily. I would like to give a straightforward answer to the noble Lord, who follows these things, but there are a number of qualifications and details that I want to come to in my speech. I have tried to set them out most carefully because I know your Lordships' detailed interested in them.

I was saying that to have incorporated the changes in the intergovernmental agreement, the fiscal union agreement, into the EU treaties now without the proper safeguards, which would have been the effect of signing in December, if my right honourable friend had gone ahead with it, would have risked changing the character of the European Union profoundly. It would have strengthened the euro area, but without corresponding balancing measures to maintain the integrity of the single market at 27. I shall come to the nature of those safeguards in more detail and why we felt they were not present.

As a result of the December meeting, eurozone countries and others are making separate arrangements outside the treaties for strengthening budgetary discipline, including by ensuring that there are much tougher rules on deficits. The Governments of 25 member states, so far, have indicated that they intend to sign up to the intergovernmental agreement reached in January.

This is a treaty outside the European Union. We are not signing it, we are not ratifying it and it places no obligations on the United Kingdom. It does not have the force of European Union law for us, European Union institutions or even the countries that have signed it. European Union legislation can be agreed only in the European Union Councils of Ministers, and we are a full member of them. There will be no inner group of European countries distorting the single market from inside the EU treaties. That is the protection that the Prime Minister secured in December, and that protection remains.

There has been much comment about the use of the European Union institutions, and I want to come to that. The new agreement sets out limited roles for the European Commission and the European Court of Justice. The legal implications are complicated and hinge upon how the agreement is implemented. It is for this reason that we have reserved our position.

We have been clear that we will not allow the institutions to be used in any way that would undermine the interests of the 27, in particular, the single market, and that we will insist that the EU institutions continue to work for all 27 nations of the European Union. Indeed, those institutions are established by the treaty, and that treaty is still protected. The intergovernmental

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agreement is absolutely clear that it cannot encroach on the competences of the EU and that measures cannot be taken which undermine the single market. As my right honourable friend the Prime Minister made clear to colleagues at the informal January European Council, we will be watching closely the implementation of this new intergovernmental treaty, and we are able to take action if our national interests are threatened.

We want to see a reformed and strengthened European Union better able to cope with the new international pattern of powers and influences. I agree with the comments that I read, made by the noble Lord, Lord Mandelson, that the EU model needs "dramatic reform"-I think those are his words-but we do not want to be part of a fiscal union. We do not want to be part of the eurozone, and we have made clear that the British people have a say before any further competence can be transferred to the European Union.

Having said that I agree with the noble Lord, Lord Mandelson, I slightly disagree with his suggestion that it is the European social model that should guide us, as I believe we should have confidence that we can develop potentially our own model, especially based on wider capital ownership, and wider ownership and distribution on a fair and balanced basis in our society, and that is what we should think in terms of.

Nevertheless, as I have said, it is in the UK's interests that the eurozone sort out its problems. The UK's attitude is supportive and constructive. We are involved in discussions on the implementation of this agreement and, as ever, in the machinery of building a prosperous and competitive Europe and a good single market. These remain our aims. The view that the only way to exert influence in the European Union is through surrendering more sovereignty and control to Brussels is, frankly, outdated.

The EU is not monolithic. It contains flexible arrangements such as the single currency and the Schengen agreement, and it is right that the European Union should have,

as my right honourable friend the Prime Minister said in his speech at the Guildhall last autumn. The UK is at the forefront of efforts in Brussels to develop our union according to this model, which we believe to be the right one.

Britain's agenda in Europe is to promote growth, competitiveness and jobs. We have said repeatedly that the best way in which the European Union can drive growth and create jobs is to complete the single market, establish trade deals with the fastest growing parts of the world-which we are seeking to do on many fronts-and cut the regulatory burdens on business.

Last year the European Commission estimated that growth in the Union this year would be 0.6 per cent. The IMF now projects minus 0.1 per cent. Competitiveness remains Europe's Achilles heel. More than half of EU member states are now less competitive than they were last year. It is essential that countries across Europe take bold action to recover their economic dynamism, get to grips with their debts, and secure growth and jobs for the future.

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This is why the UK has been arguing for a pro-business agenda in Europe. We are pushing for the completion of the single market in services, where there are still 4,700 professions across Europe to which access is regulated by government, and in the digital area, where there are over a dozen separate copyright regimes. Together, these measures could add more than 6 per cent to European Union gross domestic product within 10 years.

We are also committed to reducing regulatory burdens, especially for small and medium-sized enterprises and microenterprises, and pushing forward a patent package to support innovation. This has been discussed in Europe for over 10 years and decisive progress is now at last being made.

We are also actively pushing for decisive action to get trade moving. We want 2012 to see significant movement on EU free trade agreements with major partners such as Japan-which has been going for many years-India, Canada and the United States. Completing all the deals currently on the table could add an estimated €90 billion to Europe's GDP. An agreement between the EU and the US could have a bigger impact than all of these put together.

For countries outside the European Union, the UK remains the gateway to the largest single market in the world. Of the 1,200 Indian firms operating in the EU, over half have their headquarters in the UK. Britain is a world-class destination for international business, and the most attractive foreign direct investment destination in Europe, and remains so. Being outside the euro does not affect that.

My right honourable friend the Foreign Secretary has emphasised that we need to develop our commercial, economic and political presence in fast-growing, emerging markets. We certainly do. At the same time, Europe is our neighbourhood and our biggest market. It is full of innovation and potential for the future. More than 40 per cent of our exports go to EU eurozone member states-more of course to Europe as a whole. Trade with the EU allows us to specialise in what we produce best and to run trade surpluses with other countries, such as the US and Australia. Our aim is to use this position to expand our exports to fast-growing markets in addition to our existing exports-not as an alternative or instead of them but, I repeat, in addition.

The Commonwealth is one such area. It is one of the great networks of the future. It provides a gateway to many of the great, new markets. It includes some of the world's fastest-growing economies, with members showing democratic values and similar legal and accounting systems. These provide solid foundations for doing expanding business and a platform for trade, investment, development and, in turn, prosperity. Trade within the Commonwealth totals more than-

Lord Ryder of Wensum: I am very grateful to my noble friend for giving way. In light of all the wonderful objectives that my noble friend is setting out in his speech about British exports and how Britain is poised to gain even greater advantages in world markets, how does he explain the fact that the British Government barely opposed the clinical trials directive that is having considerable cost on our most successful manufacturing

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industry, the pharmaceutical industry, which brings in about £3 billion a year surplus on our balance of payments? Yet here we are in Britain with our pharmaceutical industries losing ground in terms of clinical trials to China and India. Ultimately, that will incredibly damage the British economy.

Lord Howell of Guildford: My noble friend puts forward one of the many challenges that we have to address. I will not go into the full details at this stage, but he is right; there are several areas where the challenges are very great for the whole of Europe, including this country, from the rising power of the great emerging markets. We have to face the fact that, as I began by saying, the world's pattern of wealth and competitiveness has changed radically over the past five years. I am not sure that many people in the media or, dare I say, some of our great policy thinkers have always grasped this fact.

The changes that we are making provide solid foundations for doing business and a platform for trade, investment and development, which in turn will be the prosperity, or perhaps I should say in a more realistic tone the survival and maintenance, of our existing standards. Trade within the Commonwealth totals more than $3 trillion annually. Our European membership is very valuable in promoting trade interests and access to new markets such as these.

The UK continues to play a strong role in achieving collective European action on many foreign policy issues, when appropriate and effective, in order to advance our shared interests and values. We drove concerted action forward at the EU level in response to Libya. The EU was actively engaged since the early stages of the conflict and we secured a UN resolution and assembled a multinational coalition force faster than at any time in history. Today, we are playing a prominent role in the EU response to the continuing violence in Syria. Some 11 rounds of EU sanctions have already been agreed and we hope to agree further measures on 27 February at the Foreign Affairs Council.

We have been at the forefront of action on Iran where, along with France, we led the EU in agreeing an unprecedented package of sanctions. The UK continues to be a strong supporter of European Union enlargement, which helps to create stability, security and prosperity. Enlargement brings significant benefits for the United Kingdom. An enlarged market obviously expands the opportunities for trade and investment. We want European nations to succeed not just as an economic force but as an association of countries with the political will, when they wish to mobilise it, and the values and the voice to use their collective weight to make a difference in the world.

Looking ahead to the March European Council, the UK will focus on ensuring that EU initiatives and projects deliver growth and jobs as agreed at the January Council. The UK plays an important role in these and other issues of significance for the Union as a whole. We are driving forward the single market, we are improving competitiveness across Europe and we are leading decisive foreign policy action when collective action works. European eurozone members are often our closest allies on some of these issues. Britain is part of the European Union not by default but by

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choice. It does reflect our national interest to be part of a single market on our doorstep and we have no intention whatever of walking away.

We want Europe to be a success, and not just for parochial reasons. We are going through a fundamental rebalancing of global power, a point I have just made to my noble friend, as economic weight shifts from west to east and from north to south; some of us have been pointing this out for two decades. Political power is diffusing from the G7 to the G20 and beyond, and from global groupings of states to regional groupings such as the Arab League, the African Union, ASEAN and many others.

Lord Clinton-Davis: My Lords, I am very interested in all that, but the Prime Minister withdrew from the European People's Party. Does the noble Lord agree with that? I thought that the EPP was in favour of a muted Europe, not an entirely neutered Europe.

Lord Howell of Guildford: That is a debating point from the noble Lord, if I may say so. He believes that that is what has happened, but some of us believe that we are working in ways that fit the pattern and evolution of the role of the European Union to be effective in the 21st century. I do not accept his words at all.

As I was saying, we are dealing with a new landscape to which Europe as a whole must adjust, as indeed must this country. Our commitments to Europe must be seen as part of a larger repositioning of ourselves in a world in which no country can go it alone. To maintain our prosperity and political clout we must work together with our neighbours and our friends. We face the same challenges and will be much stronger in dealing with them if we do so together.

I end by saying that we want to be quite clear that Britain is an active and influential member of the European Union and will remain so. That is the basis of this Government's approach to European affairs, as an integral part of our response to the changing global conditions generally. As old enmities and differences recede, it is time to forge new alliances and strengthen old ones in a reformed European Union, through the Commonwealth-indeed, perhaps I can add even here in the British Isles with our Irish neighbour, which has been through so much with great courage and to which Her Majesty the Queen recently paid such a fabulously successful visit. The coming year of the Diamond Jubilee and the Olympics gives us a golden opportunity to reposition Britain firmly in the new international landscape that is now unfolding, and that is what we will do. I beg to move.

Lord Richard: My Lords, the noble Lord did say in the course of his speech that he would say something about the safeguards. I wonder whether he would concede this point. If we do not know what the safeguards were, how on earth can we judge whether the Prime Minister was justified in casting his veto when he did not get the safeguards? It is nonsensical for the Government now to ask us to judge this on the basis of what the Prime Minister did not get when we do not even know what he asked for. Can the noble Lord lift the curtain just a little on what safeguards the Prime Minister actually demanded?

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Lord Howell of Guildford: Yes, I would like to tell the noble Lord a great deal more and detail the reasons why the decision was taken not to make this into a total EU treaty. Before I answer him in detail, the larger point is that it would have profoundly changed the whole nature of the European Union. That was the essential reason why my noble friend recognised and argued that if there was to be an attempt at a fiscal union pact and it was to go ahead, it would do so without the United Kingdom. That is why he stood back from it.

On the details, let me give four very strong reasons why it did not make sense to go ahead with agreeing with the treaty-I have to find the precise bit of paper in order to do this, which is not so easy.

My right honourable friend the Prime Minister made it clear that our preference was to move forward as 27 with the protections of the single market. That is what we sought. The Prime Minister in his post-assembly European Council statement explained the safeguards that the UK was proposing, which were modest, reasonable and relevant to ensuring that the integrity of the single market was preserved. The Government do not confirm the authenticity of documents or published informal draft texts proposed during the negotiations.

There were four areas where we felt our involvement might damage the single market and our national interests. First, we were concerned about the voting powers on financial levies; secondly, we were concerned when we sought assurances, including on the voting procedure for handing powers to European adviser agencies; thirdly, we were concerned about the freedom that member states had to wreck their own financial stability regimes. I believe that we also sought a fourth assurance. None of those assurances was forthcoming.

I apologise to the noble Lord for my hesitation in putting my finger on all these issues, but they were complex and our concerns were very precise. Those safeguards were not provided.

Lord Harrison: My Lords, in setting up ESMA, the European Securities and Markets Authority, have we not already given away that power in order to frustrate credit default swaps legislation?

Lord Wallace of Saltaire: My Lords, I think it would appropriate if we continued with the debate. The Minister has sat down. I will answer some of these questions when it comes to winding up.

12.07 pm

Lord Davidson of Glen Clova: My Lords, I thank the Minister for his very clear tour d'horizon of recent EU developments and empathise with his struggling with his brief.

There is growing concern, not only on this side of the House, that the UK's policy and strategy towards the EU are both unclear and risk being misguided. Recent events in the eurozone, particularly the moves towards the so-called fiscal pact and the UK's apparent

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isolation from the mainstream of EU decisions and discussions, suggest a worrying lack of grip in the Government.

Plainly, given the importance of the UK's trade with the eurozone and the anxieties expressed in the US, China and elsewhere about the negative consequences for global growth of the euro crisis, there is a real cause for concern. The choice by the UK to retain sterling and not to adopt the euro does not leave us unaffected by what happens to the economies of our EU trading partners. Only the most blinkered Eurosceptic draws anything positive from the current crisis. One is reminded that the enthusiasm shown in certain quarters when the UK left the ERM was short-lived and that the consequences of financial storms are rarely of general benefit. It would obviously be unwise were the Government deliberately to extract themselves from discussions affecting matters of direct interest to the UK.

Where the direction of our fellow EU members' policy appears to be leading towards unsound outcomes, the Government should of course step in to seek to persuade, warn and advise. The proposed fiscal pact within the EU member states is a good example of where government must make clear the UK's position. Procyclical fiscal austerity, subjected to legal compulsitors to be applied across the EU-the UK and the Czech Republic excepted-may seem to many in the UK an unbalanced approach to recovering eurozone stability.

Absent some collective responsibility for member state debts buttressed by support from the European Central bank, it is not perhaps obvious how long-term eurozone stability will be achieved. Even the capacity to oblige member states to adhere to the pact may seem doubtful. But what is the UK's position regarding the fiscal pact?

Reports suggest that the UK's position at the December 2011 summit was somehow to win protections for city institutions from EU regulation and transaction taxes. It goes almost without saying that the UK benefits in many ways from being the global financial centre and that states view this pre-eminence with some jealousy. It goes without saying that the Government should strive to protect this status where they can from competitive incursions. It has, however, proved difficult to identify what protections were won for the UK's financial institutions by Her Majesty's Government's approach in December last year. If there were any, it would be useful to hear what they might be and how they are thought to operate.

Is there a government policy to oppose the fiscal pact from a stance that the pact is unwise and unrealistic, or has it been decided to stand on the sidelines? Where the pact is to be enforced, apparently, by resort to EU institutions and in particular the European Court of Justice, do the Government propose to take legal action, as the Prime Minister appeared to suggest, or has the prospect of such action now been abandoned?

It was certainly somewhat puzzling how it was that the Prime Minister envisaged the United Kingdom might enjoin the European Court of Justice from deciding issues relative to euro policy that came before that court. Some clarity would be welcome. The Minister

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said that the United Kingdom would insist, watch closely and take action regarding the possible use of EU institutions. What form would the proposed action take?

Much attention over the past few months has naturally been directed towards the position of Greece and the associated negotiations. To a degree, the exposure of the UK to Greek difficulties is limited and may not seem immediate to our interests. In another part of the eurozone, however, the UK's interests are direct and substantial. In that context, I am referring to the Irish economy, which the Minister referred to.

Proportionately, for the UK both by virtue of bank lending and trade, Ireland is fairly significant. As is entirely clear, Ireland, the eurozone member state with which we are perhaps most closely linked economically, faces difficult and possibly intractable problems. Will the Minister assure the House that appropriate measures are being taken to monitor the UK's financial institutions' vulnerability to the Irish economy? Are there contingency plans in the event that the position deteriorates? Is the proposed fiscal pact likely to increase or decrease that vulnerability?

I now turn to a greater long-term question that is emerging from Her Majesty's Government's approach to EU relationships. It concerns the strategy-

Lord King of Bridgwater: In these extremely difficult negotiations with Greece, in which people presumably outside Greece are commenting on what the retirement age, the pension age and perhaps the minimum wage should be in Greece, it now becomes apparent that for the fiscal pact to mean anything at all and effect proper budget discipline, it will be considerably more obtrusive, and maybe in certain cases more draconian, than has been appreciated by many of the countries that are presently agreeing to go along with it. Does the noble and learned Lord have any view of how many in the final analysis are likely to sign up to the form of fiscal pact that is becoming increasingly evident as the discussions with Greece continue?

Lord Davidson of Glen Clova: The noble Lord raises an interesting point. In this sense, one has a negotiation from which the UK eventually excluded itself. The noble Lord correctly identified the capacity for change in the fiscal pact. Would it not have been better for the UK to have remained within that negotiation, given the somewhat protean nature of this apparent fiscal pact? The question I am putting to the Minister is: what, precisely, is the UK's position in relation to this? However, I return to the greater long-term question-

Lord Tebbit: I am waiting for the noble and learned Lord to give us a precise description of his party's policies towards this pact. Is it his party's policy that we should see Greece destroyed in the way that it is being currently and that outsiders should take over in respect of the issues my noble friend Lord King just described? At the beginning of his speech, the noble and learned Lord referred to "blinkered Eurosceptics". Some of us were not so blinkered that we could not see this coming 10 or 20 years ago.

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Lord Davidson of Glen Clova: I remind the noble Lord that the reference to blinkers was to those who drew something positive from the difficulties in which the eurozone now finds itself. I take it he puts himself in that particular position. However, in relation to-

Lord Tebbit: The noble and learned Lord suggests that I find something satisfactory in these difficulties. I do not. However, the sooner they are resolved by Greece leaving the euro, the sooner Greece will be able to conduct its own affairs and get back on its feet. That probably applies to Spain and Portugal as well.

Baroness Garden of Frognal: My Lords, given the length of this debate, it is not customary for quite so many interventions to take place during speeches. It might perhaps enable the debate to be more effective if noble Lords are not interrupted quite so frequently.

Lord Davidson of Glen Clova: I am much obliged. I was interested in the lists of people who were to be expelled from the EU that the noble Lord was perhaps hinting at. I return to what I describe as the greater long-term question, which is emerging from the Government's approach to EU relationships. The point I am trying to make concerns the strategy that the UK will adopt in promoting its position in the world, which is perhaps the greater question.

It has been the foundation of the UK's foreign policy over recent decades that we maintain good and strong relationships with both our EU partners and the United States. The emphasis has varied from time to time with the attendant tensions, but on balance our positioning has at least to a degree been within our control. However, major global shifts are under way. With the so-called pivot-the United States moving away from Europe and towards Asia-Pacific-our relationship in that direction may become less close. The rise of the economies of China, India, South Africa, South Korea, Brazil and Indonesia inevitably reduces the UK's relative economic standing in the world. At such a juncture it would seem that the UK's relationship with our EU partners must objectively become of greater importance. The UK's capacity to pursue its interests increasingly depends on being part of the world's richest market-the European Union. Being an influential and effective partner of our fellow EU member states is the best route to being a persuasive interlocutor in international affairs both within the EU and externally.

There is a danger that the UK is becoming of declining relevance to a US turning towards Asia. As we face the rise of the new economies, the importance of the UK to world trade declines relatively. Were we then to become less involved in the EU, and take the role of bystander, the relevance of the UK would diminish. A reduced engagement with the EU would leave the UK further away from influencing decision-making within the world's richest market.

It therefore follows that, whether by accident or by design, the UK being isolated at the December 2011 EU summit was, objectively, a foreign policy failure. Were such a policy direction to become entrenched-with talk of repatriation and so on-leading to the UK

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becoming a semi-detached member of the EU, may I take it the Minister would regard such an outcome as retrograde and inimical to the UK's interests?

More significantly, perhaps, where do the Government see the position of the UK strategically in the light of changes in US priorities, the rise of new economies and events in the EU and the eurozone? What is the strategic vision of Her Majesty's Government for the UK's relationship with the EU? It is necessary to ask this as recent events leave no great clarity and give rise to some concern.

12.20 pm

Baroness Falkner of Margravine: My Lords, I too welcome the opportunity to speak to recent developments in the EU. I recognise that it is inevitable that the debate will be dominated by the eurozone crisis. I anticipate that there will be numerous speeches expressing disappointment with the developments in the EU over the past few years. I understand some of those views, particularly as the lack of leadership by some players in the EU has affected our own economy so detrimentally. The profligacy of others is particularly keenly felt when one's own prudence is imperilled through the behaviour of others.

I am speaking today, though, in support of recent developments in the EU against the backdrop of the turbulence of the past few years. It is now nearly three years since the Commission issued warnings to Greece, Ireland, France and Spain to reduce their budget deficits. It is a full two years since Greece's budget deficit was revised upwards from 3.7 per cent of GDP to 13.6 per cent-something that could be described only as fraud on an industrial scale-yet the EU continues to bump along and the eurozone itself, for which headline writers had prepared their "Rest In Peace" banners, is still with us.

It is conceivable that the eurozone will lose a member along the way, but it may yet confound predictions and emerge from this crisis far stronger. Whatever happens, we in the UK have to be clear that we will not simply be onlookers but will be affected by what happens there. We would all have wished that the previous decade had not seen the mushrooming of private debt, the housing and construction bubbles and wage spirals with productivity losses in some of the less competitive countries. We can all agree that, had the financial crisis of 2008 not put pressure on government borrowing too, we would not be here. The human cost across the EU and beyond is considerable but, as commentators talk of a 1930s-type recession, it is instructive that we have avoided that sort of catastrophe to date.

If one thing has become apparent over the past three years, it is that the EU is more than a sum of its parts. The intention to create more than a free trade area was there from the very outset, and evidenced in the preamble of the treaty of Rome-an ever closer union of the peoples of Europe. Over its existence we have seen a convergence of policy-making but, more than that, there has been a genuine convergence of the values that bind Europe together. It was for the prize of a united Europe that western Europe held out

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together in the Cold War and our perseverance paid off handsomely, with those well beyond what was conventional Europe joining the queue to come in over the years.

I turn specifically to the eurozone crisis. Its handling is essentially a political issue. There are those in this Chamber who quite legitimately express concern about the installation of technocratic governments in Greece and Italy and the democratic cost of so doing. There is also concern about the power exercised by the bigger eurozone countries in imposing conditions on the indebted states. The argument goes that this is proof of the power of those faceless Brussels bureaucrats in the Commission, who are accountable to no one. However, it is exactly the opposite. The eurozone crisis has demonstrated the renationalisation of European policy, and it is ironic that those of an anti-EU posture do not like that either. The pull and push of democratic politics is very much in demonstration here, just as it should be.

Let us consider Italy and Greece, the two countries that are being led by technocrats. It was evident in both cases that the Government of the day had neither the resolve nor the numeric capability to carry out the measures needed. An alternative was proposed and accepted by the populations of those countries. What is important is that, in the case of Italy, the Monti Government have taken the necessary steps and should now be allowed to get on with putting themselves to rights. The case with Greece is different. The posturing of both the main parties is synthetic-calculated with an eye on the elections in April rather than the main issue, which is Greek insolvency.

Germany is cast as the villain of the piece, but if you were Germany, with elections forthcoming next year, would you willingly ask your citizens to write an open cheque for someone else's party? We in the UK have little appreciation of what a charged debate this is in Germany, coming as it does within living memory of the sacrifices made during unification, which resulted in higher unemployment and flat growth for over a decade in the 1990s. The words of the Oxford-educated Polish Foreign Minister Radoslaw Sikorski to Germans are instructive. He said:

"Because of your size and history you have a special responsibility to preserve peace and democracy on the Continent".

The eurozone 17 have themselves bought time in their handling of the peripheral countries so as to let the system stabilise against unrelenting market pressure. It is salutary that Iceland, which is pulling itself together again, has only recently reiterated its intention to join the EU and the eurozone as it embeds its recovery. The cost of borrowing for the deeply indebted Italy, Spain and Portugal is slowly coming down. In institutional terms, over the past two years we have seen a determined move by the eurozone to address systemic failure and to put in place, albeit belatedly, a series of measures which are intended to shock-proof the system going forward. Improved governance, though little noticed, has taken several steps forward, and a new, more robust architecture is now visible.

Notable among these steps is the so-called "six pack" set of rules aimed at strengthening economic governance in the EU. It will ensure that both the EU

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and the euro area will benefit from improved surveillance of both budgetary and economic policies. These measures have "Made in liberal north Europe" stamped all over them, and are entirely in keeping with the UK's traditional approach of embedding legal norms, with the European Commission and the European Court as the guarantor of compliance. Indeed, the agreement of the European Parliament was in large part due to the steerage of Liberal Democrat MEP Sharon Bowles, who as chair of the Economic Affairs Committee ensured that while tough rules on deficits and debt were agreed, sufficient flexibility simultaneously remained to allow for automatic stabilisers to operate in downturns.

The European Central Bank has quietly worked to keep the credit markets liquid and has made significant progress in ensuring that the EU has built up its capital base. Basel III is on track and stress tests are ongoing. The European Financial Stability Facility, or the ESM as it will become, is making progress-slow progress, but progress nevertheless-to erect a firewall as well as to engage emerging markets and others in further capitalisation. The fiscal pact is now agreed, with its emphasis on balanced budgets. So the EU has proved to be extraordinarily resilient. A recent World Bank report on Europe puts it this way:

"America has taken in poor immigrants and turned them into high-income individuals. The European Union has taken in poor countries and turned them into high-income countries".

However, to believe that Europe's economic model is valid is not to say that there is no case for reform. As the Economist put it recently:

"If America is a defence superpower, spending almost as much on defence as the rest of the world combined, Europe is a 'lifestyle superpower', spending more than the rest of the world put together on social protection".

Demographic change and the pressures of ageing will stretch health and welfare budgets further, while productivity is declining apropos emerging economies. Having closed the productivity gap with America in the mid-1990s, Europe is again falling behind, particularly in the southern countries. That brings me to the Government's priority on a comprehensive growth strategy for Europe, with a renewed emphasis on innovation and enterprise. The single market still has to operate better in certain sectors, not least research and industry, where there are still significant barriers in some countries, hence the importance of the newly agreed growth tests.

I may be presenting too optimistic a picture of where the European Union and the eurozone are presently, but perhaps I can justify my optimism in my closing remarks with a quick overview of where we were just three years ago. The shock that hit the world economy in 2008 was analogous to the great depression. In the 12 months from 2008, industrial production fell as much as it did in the first year of the depression. Falls in equity prices and global trade were greater. Unemployment has risen in some counties to levels above those of the great depression. However, we have survived all these upheavals. The shared safety nets and the ability to act together in international co-operation, to pool resources and share markets, were absent then. When historians look back on this period, the spirit of common endeavour and unity will stand out as the variable that made the difference.

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12.31 pm

Lord Jay of Ewelme: My Lords, last week was the 20th anniversary of the signing of the Maastricht treaty, which came shortly after the negotiations in Maastricht in December 1991. I had the honour of attending those negotiations with, among others, my noble friend Lord Kerr and the noble Lord, Lord Lamont. The day after those negotiations in Maastricht, an editorial in the Daily Telegraph lauded the Prime Minister, John Major, and had a few words of compliment for the Foreign Office-which I have treasured because it was, I think, unique.

I was reminded of this when the Prime Minister returned from Brussels just before Christmas and again faced a laudatory and rather triumphalist press. However, it was the start of rather a painful reappraisal, which draws me to the conclusion that there are no easy wins for the United Kingdom in the European Union, any more than there are in other areas of policy. EU negotiations are a hard slog to protect and advance British interests, faced with often intransigent member states and an often sceptical British public.

There is much emphasis on the eurozone at the moment, but that is not the whole European Union. It is worth remembering that the European Union has had two real achievements over the years, both of which are very much in the United Kingdom's interest. First, there was the coming together of western Europe after the Second World War and after the end of fascism in Spain, Portugal and Greece. Secondly, there was the provision of a democratic, liberal market home for the countries of eastern and central Europe and the Baltic states after the collapse of communism.

It is worth remembering, too, the advantages that the European Union brings to Britain today. First, as the noble Lord, Lord Howell, mentioned, it provides a single-market economic zone, which is substantial although not yet complete, with a total GDP of around €11 trillion-larger than those of the USA and Japan combined-and which takes more than 50 per cent of British exports in goods and services. We export those goods and services to a zone with a common set of rules so that business does not have to comply with 27 different sets of regulations.

Secondly, the EU provides a developing and increasingly flexible common foreign and security policy that can give Britain greater clout; for example, as part of the group that keeps constant pressure on Iran over its nuclear ambitions, and as part of the response to what is going on in Syria. Then there is Britain's part in Operation Atalanta to counter piracy off the coast of Somalia, which threatens sea routes across the Indian Ocean and into the Red Sea. I also mention, since it has not been mentioned so far, an economic aid programme of some €12 billion-larger than that of the World Bank-which operates in parts of the world such as west Africa, where needs are huge and DfID barely operates. Thanks to constant British pressure from Governments of all parties, the quality of that aid is far better now than it was before.

There are other areas, too. In the absence of the noble Lord, Lord Lawson, perhaps I can mention climate change as being one where EU policy, influenced by UK policy, enhances our own influence around the

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world and advances our national interest. I mention all this because there is often rather a British tendency to focus on only those things that go wrong, and not on those from which we profit. Of course there are things that go wrong. In retrospect, the eurozone was a flawed and risky project. Britain was absolutely right to stay out of it and it is extremely hard to see circumstances in which the United Kingdom-or, topically, Scotland-would sensibly want to join.

The concept of using economic and monetary union as a means of creating political union, rather than seeing them as an expression of political union once created, was risky, as we now see. I also have serious doubts about the viability of the fiscal compact, with its legal obligation, among other things, to keep budgets to a certain level. Nor do I know whether Greece will ultimately default or leave the eurozone and, if it does, whether that will have a knock-on effect on other eurozone economies. However, we should not underestimate the determination of the eurozone countries to keep it together. Nor should we regard its breaking up as having anything other than a profoundly disruptive effect on our own economy at a very difficult time.

Therefore, the United Kingdom's aim must surely be to work with our EU partners, in and out of the eurozone, to keep it together and, crucially, to ensure that measures taken to achieve this do not adversely affect the single market of all 27 EU countries. To go back to where I started, that is surely where the hard-headed British interest lies. Nothing in that approach prevents, at the same time, our doing all we can and should to expand our trading relations with the fast-growing economies of China, India, Brazil, Indonesia and others; or strengthening the Commonwealth, which is rightly dear to the heart of the noble Lord, Lord Howell. That approach, of being engaged with both the European Union and the world's fast-growing economies, will surely be appreciated by the United States. With its focus increasingly on its west and its south, it will want its strongest European relationships to be with those countries that have the strongest European influence. I hope that that will continue to include the United Kingdom.

I conclude by saying that, despite the difficulties, a full engagement with the European Union and its development is fully in Britain's economic and political interest.

12.38 pm

The Lord Bishop of Guildford: My Lords, I am very grateful to the Minister for this debate, and indeed warmly welcome it, including his stress on the necessity for fiscal discipline within the eurozone and his explanation of the crucial December agreement, which has already been referred to many times in the debate. In any case, Guildford is very pleased to speak in a Guildford debate.

I draw attention to your Lordships' EU Committee report, which was published two days ago and to which I am much indebted. It draws attention to what may be a serious anxiety shared by other Members of your Lordships' House-that the United Kingdom will be marginalised by reason of a shift of discussion

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to forums in which we have elected, for the time being, to have no voice. While I am glad that the UK is not opposing the proposed agreement of last December in terms of its support through European Union mechanisms, I hope, along with the EU Committee, that we shall follow its course very carefully and see where both our best interests and those of the whole EU lie in the longer term.

I suggest that it would be disastrous if the result of the pressure of what I will carefully call excessive Euroscepticism resulted in our ultimate isolation. However, I deeply sympathise with the Minister because such "islanders' fear" is hardly new. Just over 30 years ago, in the Palais des Congrès in Brussels, the then Archbishop of Canterbury, Robert Runcie, said that in Britain:

"The European Community has a communication difficulty in expressing its underlying vision. ... It is going to be hard to make progress if there is no vision of where we are going sufficiently strong to harness the energies which are easily diverted into mutual suspicion and selfish kinds of nationalism".

In that same lecture he bewailed the fact that:

"Little Englanders still exist who believe that all would be well if we withdrew from foreign entanglements".

He added the obvious statement:

"The complexity and interdependence of economic and political life in the modern world make isolation an impossible option".

Plus ça change!

It is still obvious to me that if there is a leak in the ocean liner below the eurodeck, it will soon enough affect the sterling passengers as well, as the Minister has himself stressed, adding significantly that the EU is our largest market.

However, in your Lordships' debate today, which is largely about economics and politics, the voice of the churches and, indeed, of faith communities, may seem an irrelevance. I argue that that is not the case, although I declare an interest here as the Anglican vice-president of the Conference of European Churches, which is wider than the EU.

Robert Runcie could not be dismissed as a wet pro-European without patriotism. He did not earn his MC in the Scots Guards for Utopian idealism but by knocking out a Panzer single-handedly in Normandy. Yet after the war he returned to Oxford and immediately volunteered to go back to Germany in the Oxford-Bonn reconciliation exchange. That was the European vision he spoke of in Brussels: a Europe of reconciliation, compassion and meaning. With such a vision we have the potential for communities of virtue.

This was also the Christian vision of the founders of the European institutions: Jean Monnet, Robert Schuman, Spaak and de Gasperi. They were inspired by a vision of what I would loosely call Christian democracy-that is not necessarily a party political tag-which gave life to otherwise dead institutional and economic structures. Without such fresh vision, I fear that Europe will eventually lapse into petty parochial haggling and dangerously extreme forms of nationalism.

I am an amateur historian, so I conclude with the following reminiscence. Not far from this place, in Westminster Hall, the Man for All Seasons, Thomas More, was tried, to be eventually beheaded at the Tower of London. At his trial in this Palace of Westminster, he spoke movingly of his true patriotism.

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He remained the King's servant-though, of course, God's first-but he also had a wider vision than King Henry VIII. Thomas More said at his trial:

"And for the Kingdom I have all other Christian realms".

As we properly debate the economics and politics of the EU and wider Europe, may I make a plea for a revival of the vision of Europe which fired the EU's founders and which is deeply rooted in Europe's many cultures and, now, its many communities of faith?

12.44 pm

Lord Lamont of Lerwick: My Lords, it is a pleasure to follow the right reverend Prelate. I think Thomas More might have been in favour of an ever closer union of peoples but it would have been of peoples, not of institutions and crowns-of that I am sure. However, I am grateful to the right reverend Prelate for making that observation.

I spoke in the debate in November on Europe and so I hesitated to impose myself on this House again. However, this is a fast-moving scene although we always seem to be in the same place. I wish to comment on four issues. The first is the so-called veto by the Prime Minister of the proposed treaty change. I would not have criticised the Prime Minister if he had not vetoed it. However, unlike some Eurosceptics and some Europhiles, I did not regard the veto itself as a seismic event. On balance, it seems to me preferable to have an intergovernmental treaty outside the main EU treaties because it lessens the read-across from the treaty to the single market and to the issues raised by financial regulation. It is true that, of course, a regime for financial regulation has already been agreed but it was agreed in different circumstances where there was a different relationship to the rest of the EU from that which there is now, when there is to be a fiscal union within the EU. That seems to me to raise profound issues for a pan-EU regulatory system.

At the subsequent Council, the Prime Minister took the advice of my noble friend Lord Brittan of Spennithorne and did not veto the use of EU institutions. However, as my noble friend Lord Howell has made clear, that is still an option that we have. Indeed, if the treaty is to be folded into the wider EU treaty, Britain still has a veto. Noble Lords on both sides of the House will take different views about this but whatever the rights and wrongs of the Prime Minister's veto, the Financial Times got it right, when commenting on the drift and indecision that has characterised this crisis, when it asked, "Even if the Prime Minister made a mistake, what on earth has the eurozone done?". Indeed, the summit was extremely disappointing in its outcome.

A number of noble Lords are worried that Britain will be isolated and will lose influence. However, we cannot be both in the euro and outside the euro: we have to make a choice. We have made a decision not to be in the euro. There used to be an old French joke that if an Englishman was asked whether or not God existed, he replied, "The truth is somewhere in the middle". We must stick by the consequences of the decision that we have made not to join the euro, which I think was a sensible decision.

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The second issue on which I wish to comment is the fiscal union itself as opposed to the veto of the fiscal union. It has long been said by many people that inevitably the single currency, if it is to work, would have to lead to a fiscal union. I must say I was a little puzzled by the enthusiasm of the noble and learned Lord, Lord Davidson, for fiscal union and the treaty. Noble Lords on that side of the House spend a lot of time criticising the Government for reducing the deficit far too quickly. I am not sure that they quite realise what the fiscal union treaty would imply. It is a treaty which actually abolishes Keynesianism. Although I am not a great Keynesian myself, I would fight for the freedom of the other side to be Keynesians and to implement their policies.

Mrs Merkel talks about a fiscal union, even a political union. However, I am sceptical that that is really what this treaty is. It seems to me that it is a much more beefed-up version of the stability and growth pact. The interesting point is that it does not use the word "growth". That was true of the original proposed title of the stability and growth pact. Originally, the Germans wanted it to be called just the stability pact and then the French insisted that "growth" was added. This time the French have not even been able to get "growth" added. However, this is not real fiscal union in the true sense of the phrase-that is, having a harmonised tax system and a single treasury. It is a cloak for German-style policies-I do not mean to use that phrase in any sinister way-to be imposed on other countries in Europe. That is what it is, and is what led one German Minister, rather foolishly and rashly the other day, to say about the fiscal union, "Everyone in Europe is now speaking German"-a remark that was not universally well received, particularly in one country where someone remembered the Hapsburg Emperor Charles V, who said that he spoke Spanish to his court, French to women and German to his horse. That is perhaps how that remark was viewed in certain other countries. Of course, a real fiscal union, as the former President of Germany, Mr Herzog, has observed, poses profound questions of accountability and democracy. That observation was made by a former President of Germany, not a Eurosceptic.

The third issue I wanted briefly to comment on was the decision of the ECB to make available the three-year long-term refinancing facility for banks. This has been a bit of a game-changer, not for the reason that a lot of people have given. They believe that this is the buying of bonds by the back door, which the German Government-rightly in my opinion-are absolutely opposed to. No, this is actually safeguarding the banking system, making liquidity available to it, and in that way has separated the issue of the stability of the banking system from the issue of the finances of Governments. That has been a feature of the crisis-the ricocheting from sovereigns to the banking system, and from banks back to Governments. The actions of the ECB have managed to separate out those two things. However, the ECB has become an interbank market. It is the substitute for the interbank market. That cannot go on indefinitely. It is merely buying time, and at some stage the banks have to come back to the market and get commercial financing, or we are not living in a real world or a real market economy.

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The fourth event or issue that I wanted to comment on were developments in Greece. Although I have always been opposed to the single currency, I have said that I thought it would survive for quite some time, and that it would survive its first crisis but probably not its second. However, that did not exclude the possibility of, say, one or two countries dropping out of it. At the beginning of this year, I took a bet with someone that Greece would still be in the euro at the end of this year. I am not sure that I am going to be able to keep my money. The question is: would it be better if Greece left the eurozone? It was the late Lord Butler-not the noble Lord sitting here but the late Lord Butler of Saffron Walden-who once said, "Politics is the art of the impossible".

Noble Lords: Possible.

Lord Lamont of Lerwick: Possible. What I was about to say was that politics is more accurately described as choosing between the utterly impossible and the utterly incredible. That is the situation in which Greece finds itself. The package that has been proposed is extraordinarily far-reaching-a 20 per cent cut in public sector salaries on top of a 20 per cent cut previously, and a 22 per cent cut in the minimum wage. The Greek economy has contracted by 6 per cent in the past year. It has been in recession for five years. Yesterday, someone who described himself as the Minister for Public Order in Greece-a rather Robespierreian title, but I believe it was genuine-appeared and said that Greece was absolutely at the limit of what people could and would be able to tolerate. That seems very probably to be the case. It seems to me unlikely that Greece will ever be able to implement what it is being asked to do. Even if by some miracle it was able to achieve what is being demanded, it will get debt to GDP down to 125 per cent of GDP only by 2020, and so more austerity will be demanded of it, even after 2020. It seems a certainty that Greece will leave the euro. It would probably be more honest and dignified if that happened now, rather than later, after money has been lent to Greece. It will eventually have to make that choice. It will be very difficult in the short term, as it was with Argentina when it ended its currency link and currency board.

The point I want to conclude on is that Greece is not unique. Italy, Spain and Portugal are in a similar, not so bad, situation, but are two years in arrears. Italy, if it is to comply with the fiscal union pact, will have to run a primary surplus of 5 per cent. To get growth, Italy will have to lower its real exchange rate by 20 per cent to 30 per cent without being able to alter its nominal exchange rate. It will have to achieve levels of inflation 2 per cent below those of Germany. This is the prospect that faces Spain, Portugal and Italy. Greece, therefore, is not unique. It is an extreme example, but it is the canary in the mine. Members will remember that miners used to take down a canary into the mine as a warning of the dangers to come. I fear that what the eurozone faces is a very bleak future, and several countries will have to face unrest and discontent-as, indeed, Mario Monti has recognised. The sooner

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that that is recognised about the euro as a whole the better. Europe is not the euro, and the euro is not the European Union either.

Lord Lea of Crondall: Before the noble Lord sits down-

Noble Lords: No.

Lord Lea of Crondall: Before the noble Lord sits down-

Noble Lords: No.

Lord Lea of Crondall: If people would stop interrupting, I have a question.

Baroness Garden of Frognal: My apologies to the noble Lord but the noble Lord, Lord Lamont, has sat down, and it is time to move on.

Lord Lea of Crondall: Is this a new doctrine? It is quite normal to intervene if the noble Lord has not actually sat down. That is the convention of the House. Is that not the case? Can the Whip say whether it is not normally case that before the noble Lord has actually sat down, one can say, "Before the noble Lord sits down"?

Baroness Garden of Frognal: It is also the case that no Member who is speaking has to give way to an intervention. It is up to the Member who is speaking. I think the noble Lord made it clear that he wished to finish his comments and sit down.

Lord Lea of Crondall: The noble Lord indicated that he was about to sit down. I intervened in the normal way. There have been some very rude interruptions from the Conservative Benches and I will take this further in a different form. I am very sorry to be discourteous to the Liberal Democrat Whip but I do not think she will find that the doctrine she has now enunciated is correct.

12.57 pm

Lord Mandelson: My Lords, I do not know whether the noble Lord, Lord Lamont, is more canary or Cassandra. I could take up many of his observations, but I shall not. Nor shall I dwell on current events in Greece, although I do think they illustrate the risk of becoming too fixated on austerity out of fear of market sentiment. Nor am I going to dwell on the events of December's European Council meeting. I am not sure who was in the driving seat, but both the Prime Minister and the Foreign Secretary chose to drive up a cul-de-sac of their own making. The important thing now is that the Government have decided to take an altogether more emollient approach, and that is welcome.

However, for all the interesting words and useful tour d'horizon of the Minister, the noble Lord, Lord Howell, I am still left with the abiding view that the

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Government are seriously lacking a hard-nosed, sustainable and long-term strategy for conducting Britain's relationship with and within the European Union. It is a relationship-this is really my main point-that will be profoundly affected by the changes and restructuring that the eurozone will have to undergo if it is to endure and if economic and monetary union mark 2 is to be successfully created.

Whatever the virtues and successful record of the single currency itself, the design problems of the eurozone, on the other hand, are clear. A single collective monetary policy operating alongside a set of 17 national and insufficiently co-ordinated fiscal policies is not optimum. A currency union operating outside a single sovereign framework is certainly complicated. The absence of a central bank acting as a lender of last resort is not ideal. Convergence of the eurozone economies, much anticipated at the outset, has not happened and has become a serious impediment.

I leave it to others to amplify those issues. They all need addressing. No doubt there are those who relish the eurozone's predicament as a precursor to its inevitable demise. I say to them: be careful what you wish for. There is no bad outcome for the eurozone that is not also bad for the United Kingdom. Europe is our home, domestic market. Europe's growth is our growth. Europe's prosperity is our prosperity. If the European currency collapses amid a string of sovereign, corporate and banking defaults, the knock-on effects for all of us will be calamitous.

That is why, in my view, the Chancellor of the Exchequer is right to play a constructive role in helping to get through this crisis. The rest of the Government and the rest of his party-and, I might say, the Labour Party-should support the Chancellor, including in respect of the IMF's involvement in helping to get through this crisis.

These, however, are just the preliminaries. In the months and the year ahead, the Government will be confronted with some big policy choices and substantial decisions on Europe and the future direction of the European Union. The eurozone will have to address its original design flaws. In effect, it will have to reinvent itself to sustain itself. The steps that the eurozone will have to contemplate and prepare for, politically and institutionally, will make the current negotiations over the fiscal treaty look like a casual walk in the park. It will be no good saying, "We are not in it, so it does not concern us and we needn't bother". For Britain, that is not an option. The Government will find themselves in a substantial dilemma.

Essentially, the dilemma is that the UK is actually willing the eurozone to integrate further. We are-I think rightly-telling the eurozone member states to follow the construction of the currency union to its logical political conclusions. That is what the Prime Minister and the Chancellor are saying, and I think they are right, but, at the same time, they are pretending that that can happen without a cost to Britain's position and influence, standing as we do outside the core. If EMU mark 2 emerges, as I think it should and will, Britain's terms of engagement not just with the eurozone but with Europe as a whole will change seriously.

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We will see an inevitable gravitational pull in focus and decision-making to the eurozone from the EU of 27. Instead of an EU that the Government would like to see as wide and shallow, the eurozone means that it must deepen. That will call for much smarter, much more intense engagement by the Government, not less.

As it happens, the Government got off to a reasonable start, one that was engaged in Europe, if not overwhelmingly enthusiastic, at the beginning of their term. I think that Ministers were pleasantly surprised by how much Britain is valued in the European Union and how much Brussels wants to accommodate our views. However, the feeling in Brussels now is that that engagement has waned since the early days of the Government. That is bad news for Britain and bad news for Europe. As the Government's dilemma, which I have described, gets deeper, their ambivalence will become less and less useful and their lack of a plan for our longer term relationship with the European Union will become more and more obvious. That is dangerous for one reason above all-I shall finish on this.

As Trade Commissioner and as Business Secretary, and now in the work I do outside your Lordships' House, I have spent a lot of time in the rest of the world. It is naive not to realise that the rest of the world sees us in Britain as no different from Europe. Of course, we have been largely sheltered from the investor nerves and capital flight that have blighted the EU's periphery, but the credibility problem that we have in the eyes of the world is a European one that includes Britain. People in the United States and Asia say that, as an asset class, Europe is over and that Europe, including Britain, belongs to the old world, and that we cannot fix our problems because we lack the mechanisms and the political will to do so. That hurts us all as an investment destination, and we need to repair it. Of course, it is a caricature, but it is none the less a perception.

As it happens, given the constraints, I think that EU institutions have moved a long way to face up to the eurozone's problems in the past year. New Governments in Italy and Spain are doing so now. However, Europe as a whole, including Britain, urgently needs to show the world that it has a plan both to reboot the eurozone and to re-engineer growth in Europe-one that rethinks EU structural funding and intervention, uses the European Investment Bank to better effect and deepens the single market for services. We also need social model reform to sustain that essential safety net in Europe. We have to show once again that Europe is investment-grade. Floating Britain off somewhere into the mid-Atlantic, to quote the noble Lord, Lord Heseltine, will not help us put together that plan to signal to the rest of the world that we have our act together and know where we are going.

In my view, that is what the Government have to face up to and, in doing so, face down the rather unworldly figures in their own ranks. They have to do so with a darn sight more courage and, above all, a darn sight more rigour than they are showing at the moment.

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1.08 pm

Lord Howe of Aberavon: My Lords, I have to say a rather surprising thing: my intended observations are insufficiently organised for exposure today. The House will have to wait for another opportunity. I seek forgiveness for my modesty.

1.09 pm

Lord Harrison: My Lords, this is a timely and important debate, as the European Union is facing its most serious crisis since its inception. Only this week, we have continued uncertainty about the future of Greece against the background of widespread unrest, falling GDP figures, threatened ratings downgrades by one of the credit rating agencies and the danger of fragmentation, with France pushing ahead with its financial transaction tax. What happens in the euro area has a direct bearing on the economic development of this country. Earlier this week, the European Union Committee produced its latest report on the euro area crisis. It was based on the work done by the Sub-Committee on Economic and Financial Affairs, and International Trade, which I chair, and by the main Select Committee, chaired by the noble Lord, Lord Roper. The sub-committee focused on economic and financial aspects of the crisis; the Select Committee focused on the institutional aspects and is responsible, in particular, for the chapter on the proposed fiscal compact treaty.

The crisis is actually a series of overlapping crises-financial, economic, political and institutional. Alone, any one of them would have challenged the European Union leaders. Taken together and reinforcing each other, the challenges are monumental. Professor Buiter, commentating on the alacrity of EU leaders in addressing the problem, described it as a "caterpillar hurdling". EU summits have come and gone. There has been a series of announcements and agreements but they have so far failed to resolve the crisis, and there have been major difficulties in implementing things that have been agreed.

The committee examined an outline agreement reached at the EU summit on 26 October last year on recapitalising European banks, writing down Greek debts and increasing the financing of the European rescue funds. However, the details were left to be worked out subsequently and are taking too long to finalise. For example, on recapitalising banks, the agreement was aimed at boosting the capital held by banks, and it specifically warned that banks should not achieve a higher capital ratio by deleveraging. It was put to us that giving the banks nine months to achieve their new capital ratios would lead to exactly that-a deleveraging with a failure to invest in future industries.

We examined the role of the European Central Bank. The bank states that Article 123 of the Treaty on the Functioning of the European Union prevents it buying euro area debts directly from euro area states. However, over the past months it has greatly increased its purchases of sovereign bonds on the secondary markets, and in December it offered long-term loans to banks at very low interest rates. Indeed, 500 European banks took up an extraordinary €489 billion in loans. The bank is expected to repeat the operation at the

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end of this month. We caution against seeing the ECB as a panacea, but we judge that further ECB action is likely to prove essential, at least to preserve the functioning of credit markets.

The Select Committee examined the proposed fiscal compact treaty, which was negotiated after the European Council in December. The Government said that they went into that meeting with the view that the "optimum outcome" would have been an agreement at the level of all 27 European Union member states with the interests of the United Kingdom protected. However, the Government have refused to publish the details of the safeguards to which the other member states did not wish to agree. Again, I say to noble Lords on the Front Bench opposite that it would be extremely helpful and useful if the proposals that we found so difficult were published. It is impossible for parliamentarians and others to form a balanced view about the outcome of that meeting, on which the Government remain dumb.

I turn to the agreement itself. There has been a high-speed series of negotiations, which have resulted in a draft treaty on "stability, co-ordination and governance in the economic and monetary union". It is intended that only the euro area countries will be bound by the requirements of the treaty, unless any other country volunteers to follow these rules, and many are. The treaty includes, in particular, measures on budgetary discipline, which will have to be translated into national law,

One witness, the former Prime Minister of Italy, Mr Giuliano Amato, suggested that the treaty would not be enough by itself to resolve the crisis but that it was necessary to restore trust. He said that,

In principle, the committee considered that the euro area states must be free to take the steps they consider necessary to strengthen the euro, including in the key area of fiscal integration, but that matters relating to the single market must remain the preserve of all 27 EU member states. Again, I urge the Front Bench opposite to consult the evidence of Professor Craig, who came before the Select Committee, on the ambiguity of having a treaty between the EU 27 as currently formulated and having the fiscal compact treaty. There is no doubt that one thing that might become contaminated is the single market. Incidentally, I think that in this Chamber there is a universal view of the benefits of having a proper and functioning single market.

The Select Committee highlighted a number of legal and other issues raised by the proposed treaty, including the relationship between it and the EU treaties and laws made under the existing EU treaties; the proper role of EU institutions in relation to the treaties; and the overlap between the new treaty and requirements under existing EU laws. Some of the difficulties would disappear if the proposed treaty were folded into the main EU treaties. Article 16 of the proposed treaty suggests that this should happen, after a review of experience with implementation.

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In principle, the Select Committee could see no reason why this should not happen in due course. It is worth emphasising that, even if it does happen, the key provisions will still apply only to countries using the euro. I ask the Government whether they will contemplate folding in the treaty and joining in with that enterprise.

We accepted that budgetary discipline is necessary to make progress in resolving the crisis, but ultimately it is the resumption of sustainable economic growth that will hold the key. We mean this both in general terms across the European Union and specifically to boost the competitiveness of certain areas of southern Europe compared with the north. It is hugely concerning that the potential of the further development of the single market to enhance such growth has faded from view during the crisis. Perhaps the most important challenge facing policy-makers now is to find policies to support economic growth which can be implemented effectively during the period of budgetary austerity.

I draw the House's attention to other things that are going on which are contingent on the development of the European Union. For instance, this morning my committee interviewed Commissioner Šemeta on the financial transactions tax, and I hope that noble Lords will have the opportunity to read the transcript. My committee has published the sovereign credit rating agencies report, which has come back into focus again with, extraordinarily, one of the CRAs predicting the rating of Scotland were it to leave the United Kingdom. We also now have in place the European new supervisory financial framework. There have been some major changes in the way we oversee the financial services which appertain to London, including the creation of various European supervisory authorities. These things are happening. As the noble Lord, Lord Mandelson, said, we have to be alert to these changes and we have to be actively engaged if we are to ensure that the United Kingdom's interest is preserved in the future.

1.19 pm

Lord Kakkar: My Lords, as is quite right, this debate has focused principally on questions related to the economic crisis facing the eurozone and on questions concerning the negotiation of the ongoing treaty. I should like to seek further information and guidance from Her Majesty's Government on how they are currently dealing with the unintended consequences of previous European regulation as it applies to the delivery of healthcare in our country. In so doing, I remind noble Lords of my entry in the declaration of interests as professor of surgery at University College, London, consultant surgeon at University College Hospital and an active biomedical researcher.

There are three important areas where there is consensus with regard to concerns about the application of European regulation and its incorporation into United Kingdom domestic legislation. The first is with regard to the ability of our national regulator, the General Medical Council, to assess the competence and language skills of doctors registered elsewhere in the European Union who come to work here in the United Kingdom. The General Medical Council currently has on its register 22,542 doctors registered elsewhere in the European Union who automatically have the

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right to be registered in our country by the General Medical Council because they have been registered elsewhere in the European Union.

The General Medical Council is not entitled to make any assessment of their competence, their skills to practise medicine and their ability to communicate in the English language as a result of the way in which the European regulation has been interpreted and incorporated into UK domestic legislation. Clearly that is not appropriate. We have seen unintended consequences with the result that doctors have come to practise in our country, have been unable to communicate appropriately and have not been subjected to the same tests and safeguards as any other doctor would be prior to registering with the General Medical Council. As a result, patients in our country have been put in jeopardy and their safety has been compromised.

I had the privilege of introducing a Question for Short Debate on 11 January in your Lordships' House when this matter was discussed at some length. Following that debate and the subsequent media coverage, the European Union Commissioner for Internal Market and Services wrote an article for the Daily Telegraph in which he stated that it was an overinterpretation of current European regulation, with regard to the position which previous UK Governments have taken, that had resulted in an inability of the General Medical Council to perform the language, competence and skills testing that our citizens would reasonably expect our national regulatory body would perform for any doctor registered to work in our country.

I ask Her Majesty's Government what plans they have to redress that issue. In particular I know it is not normal practice or convention to pre-announce any measures that might be dealt with in the gracious Speech, but is there an opportunity in the forthcoming Session to redress that issue and to deal with an amendment to the legislation to ensure that, in the future, the General Medical Council is able to undertake this type of competence, skills and language testing that is so very important to ensure that all doctors and healthcare professionals in our country practise to a high standard? I emphasise healthcare professionals because there is a similar problem with regard to the ability of the Nursing and Midwifery Council to undertake such competence and skills testing.

The second area is the application of the European working time regulation with regard to certain disciplines and specialties in the broader area of medicine. Here I speak to the craft specialties, such as my own of general surgery, where it is generally agreed that a 48-hour working week is an insufficient period in which to provide appropriate training for our young doctors who wish to go on eventually to practise as independent consultant practitioners in our healthcare system. Very recently, two narrative verdicts by coroners in London identified the application of the working time regulation as a contributory cause to the deaths of two patients, one after an elective surgical procedure.

The imposition of the Working Time Regulations with the restriction to a 48-hour working week has made it impossible for our healthcare system, in the way in which it is currently delivered, to organise rotas that allow continuity of care for patients in hospitals.

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Clearly, that cannot have been an intended consequence of the working time directive when it was adopted into UK domestic legislation. It is vital that we overcome that problem and ensure that our patients remain safe and properly cared for in our hospital system.

The third area is the adoption of the clinical trials directive into domestic legislation. When the clinical trials directive from Europe was originally proposed, it was proposed with very good reasons to try to improve the standards of clinical research across Europe. An unintended consequence of the clinical trial directive has been excessive bureaucracy, which has undermined the competitiveness of clinical research in our country. In 2000, 6 per cent of all patients in the world who entered into clinical trials came from the United Kingdom. The clinical trials directive was adopted in our country in 2003, and by 2006 that level of participation fell to just 2 per cent of all patients entered into clinical trials coming from our country; in 2010, the figure was 1.4 per cent.

That has had a serious impact on the competitiveness and the standing of our life sciences industry and our academic contribution to biomedical research globally. That is hugely important because research drives innovation in our healthcare system; it improves standards; and it allows us to become more effective and more efficient in terms of delivering higher standards of healthcare. However, the Prime Minister announced on 5 December last year a life sciences strategy for our country, recognising that life sciences represent the second most important industry to our economy after financial services. It is well recognised that unless the problem of our competitiveness in terms of being able to undertake clinical research is addressed, the broader ambition of promoting our country as an inward investment centre for life sciences will not be achieved.

It cannot be right that unintended consequences of European regulations, and the way in which they have been interpreted and incorporated into UK domestic legislation, should be allowed to undermine the training of our young doctors, which ensures that future generations of healthcare professionals provide the highest standards that the people of our country have rightly come to expect; that that incorporation of regulation is allowed to undermine such a vital area of economic and academic activity as life sciences and biomedical research; and, most importantly, that it puts the safety of patients in our healthcare system unintentionally in jeopardy. I very much hope that in the coming Session, and in answering the debate, the Minister may be able to provide some reassurance that, despite all the other problems and challenges that Her Majesty's Government face with regard to negotiations in Europe currently, they will continue to address actively these three important areas.

1.28 pm

Lord Higgins: My Lords, the noble Lord, Lord Kakkar, has raised-entirely appropriately, given the breadth of the Motion before us-a number of extremely important issues. One must hope that in reply the Minister can give him answers to the very specific three points that he has rightly made.

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I wish to concentrate on the crisis in the eurozone. It is very unfortunate that our debate on this subject in the Moses Room was diluted by the fact that the Labour Party insisted on bringing in other, related economic issues. It is sad that we have still not had a debate on this specific issue. It reflects the serious problem that we now have in the relationship between the two Houses. Regrettably, the present Government have followed the practice of the previous one in dramatically guillotining debates in the other place, with the result that legislation arrives here in such a condition that it crowds out opportunities for debate on serious issues such as this one or, as has been mentioned, the Arab spring. To a large extent we are carrying the legislative burden, with the number of Committee days far in excess of what is normally accepted. This is not a criticism of the procedure of the other place; it is a criticism of the way in which the Government are dealing with these matters there. I hope that we will tackle the issue as soon as possible, because the balance between the Houses has been distorted.

Many of us in the past pointed out very clearly the dangers of the single currency. These were exacerbated as the eurozone grew ever larger. It is probably true that even my noble friend Lord Tebbit did not realise the extent of the approaching disaster or the problems that we now face. Of course, the failure to deal with them was to a large extent due to the rigorous approach of those who wished to see an ever closer economic and political union. A little while ago, Mrs Merkel said that if the eurozone broke up it would lead to the end of the European Union. This is simply not the case. What should stop is the headlong pressure toward closer political union.

The search for a solution to the present problems is hampered by confusion between the debt problem and the exchange rate problem. The two are of course related. The extent of the indebtedness of European countries is to a large extent due to the fact that they found themselves in an environment created by the single currency. However, the solution to the problem cannot be found in dealing with the debt problem alone. We need to deal with that, but it will not solve the underlying problem. We could go through bailouts ad nauseam until either German generosity runs out or the streets of Athens become even more dangerous, but we will not solve the problem through bailouts.

The only answer to the Greek situation is for Greece to leave the euro and adjust its exchange rate. However, as was pointed out in an earlier speech, it is not just a question of Greece; there are further problems because countries in the single currency have given up the main means of adjusting for differential movements in costs and prices. Therefore, it is likely that over time other countries such as Portugal, Spain and Italy will find themselves in the same situation. The reality is that the eurozone is too diverse in its present composition to accommodate a single currency. This was not the case when it was just Germany, France, Benelux and so on; but it is now too large an area for these variations in costs and prices over time to remain unadjusted. We may find that eventually a solution is found by an

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adjustment of the exchange rate. Certainly it would benefit Greece, as well as the eurozone as a whole, if it were to leave.

We were told that the creation of the single currency would lead to convergence. In fact, that has not been the case. European countries have diverged. We were told that it would contribute to peaceful circumstances in Europe, whereas we now find bigger tensions between certain European countries than have existed probably at any time since World War II. There are difficulties here. The other problem, to which my noble friend Lord Lamont referred, is that we are simply seeing a rerun of the stability and growth pact, but with no mention of any growth. This involves a very significant loss of national sovereignty, which one has seen particularly in the Greek situation. Control over tax and spending has always been the hallmark of national sovereignty. Giving up that control-this is currently very apparent with some countries in the eurozone-inevitably leads to that country being undermined. Having said that, obviously a degree of fiscal co-ordination is necessary.

I have a couple of further points. One problem with the debt has been to get a degree of agreement with private creditors. It is constantly being said that there will be a deal and that the creditors will take a so-called haircut. It is understandable that they have been reluctant to do so because they do not know whether, if they write down the debt, there will be a subsequent devaluation that will further reduce the value of that debt. Until they know where they are-there is a high degree of uncertainty about exchange rates-they will be unlikely to be very enthusiastic about agreeing to a debt reduction.

My final point is that if a country-it is likely to be Greece-leaves the eurozone, it will not be a simple matter. My noble friend Lord Wolfson offered a prize of £250,000 for a paper explaining how it could be carried out. Some newspaper commentators think that it is just a question of printing more notes and coins. One certainly hopes that if the thing happens there will not be chaos for a very long time while they get around to printing the notes and coins. It would not be a good idea to go back to the drachma; it would be more appropriate to think up a new name for a euro-replacement currency.

It would be very dangerous if contingency plans were not made well in advance to deal with the problem. This is a matter for the British Government as much as for anyone else, because we will not be able to avoid the consequences, particularly for the banking system, which could be very serious. Therefore, I hope that Her Majesty's Government will be very active in making contingency plans to deal with these matters. It is not just a question of having a new currency established. There will be great dangers of flight from the existing currency in certain countries; there will be a great need for exchange controls, at any rate on a temporary basis; and one must have some doubts about the ability of the Governments concerned to direct a suitable system of exchange controls. These are all very serious matters and one must hope that the Government will take a very proactive line in providing

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a contingency plan to deal with them. However, this will only be done by dealing with exchange rates and not with the debt alone.

1.38 pm

Lord Grenfell: My Lords, it is always a pleasure to follow the noble Lord, Lord Higgins. We first debated Britain's relationship with Europe more than 50 years ago at Cambridge, and I am extremely happy that we are still at it.

We have heard many wise words-and a few not so wise-about how to cope with and solve the crisis. I will not add to the substantial body of views that is informing today's debate. Rather, I will look a good way further forward into the future-even further than my noble friend Lord Mandelson did in his magisterial contribution. What I foresee may not happen in my lifetime; but that in no way weakens my conviction that it will come. What I foresee presupposes the EU's survival of the present crisis. That may appear to some to be a risky assumption, but I am and always have been an optimist about our European project. The then Community and the present Union have been through tough times before, though maybe none so testing as today. Less than two months ago we were being told by the media that there were 10 days to save the euro. It is still there. Would the eurozone survive a disorderly Greek default? Very likely it would. Would contagion spread? Possibly it would, but with every day that passes the Union's preparations to counter it become more convincing-and as one commentator said yesterday, the gaps between the dominos are lengthening. So we should not rush to write off the euro, the eurozone or the Union itself. If they emerge battered but intact, as I believe they will, they could also emerge strengthened by an experience that may finally have convinced both members and institutions that Europe now has to be rethought. So, what then might happen?

Some way ahead in the future lies a fully federal European Union. It will take some building, step by step-more purposeful than creep, less precipitous than a leap-but built it will be. First will come the fiscal union and then the political union. The distribution of power between the member states and the Commission will be substantially altered. From a fiscal union which embraces a common economic doctrine a political union will begin to take shape, organised around the existing institutions. The Commission will acquire more competences and act as a Government accountable to a strengthened European Parliament. The European Council of Heads of State or Government will become the Parliament's second Chamber, and in all likelihood a President of the EU will be popularly elected.

I hear noble Lords muttering, "That will never happen", but if there is the political will to create a federal Europe, it will happen. Not all will want it, but the great majority will probably see it as inevitable in the course of time. To them, more, not less, Europe will seem the logical way forward after a crisis like the present one. Chancellor Merkel is not alone in seeing that as the only way forward. Maybe she will not convince her electorate-on the other hand, maybe she will. I believe that she will. Elsewhere there are

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straws in the wind. On Monday, France's equivalent of our CBI announced that the creation of a United States of Europe was now a top priority. It is imperative, it said, that there be common economic, monetary, defence and security policies across Europe.

What really convinces me of the inevitability of a federal Europe is the growing feeling among the younger generations of continental Europeans that it is the right goal if they and the generations to follow them are to enjoy peace and sustainable prosperity. I travel a lot in continental Europe and I listen a lot to the young. A small minority are unashamed nationalists, but the great majority want more, not less, Europe. In the face of globalisation and the burgeoning power of countries such as China, India, Brazil and other new economies on the rise, they want a strong, competitive Europe, with effective economic governance, greater solidarity, convergence of values and the more determined pursuit of common goals. I shall give a small example. Just yesterday I was approached by a newly founded group of German students called Euroskop. Next month, a group of them will embark on a tour of 21 European capitals to gather opinions on the future of Europe, and they will be coming here to the House of Lords. Their message is that Europe needs a new narrative. The quest for a shared vision of Europe is being crowded out by the necessary focus on dealing with the present economic and financial crises. All across Europe, protesters are voicing their discontent with the political class. They are asking whether European youth is calling their parents' idea of Europe into question. What brings these young people together and what separates them? This is the generation that is going to reshape Europe, and what will it look like? My strong hunch is that it will look like a federal Europe, and I hope that that will be the case.

The United Kingdom will probably not want to be a part of that. We may want to stay on the sidelines and find some convenient associative relationship with a federal union-and so be it, though it is not what I would want for this country. I doubt very much that it is what future generations here will want when they see what life is like on the sidelines, but I may not be around to see that. For the time being, I remain convinced that the rest of Europe will embrace the different future that now beckons. I believe that a federal Europe is inevitable-and if I were there, my bow to the inevitable would be one of reverence rather than surrender.

1.45 pm

The Earl of Sandwich: My Lords, I begin by regretting the absence of my noble friend Lord Williamson, who would like to have been here but is convalescent and will be joining us again after the Recess.

I am a Germanophile, and I have long admired the discrete position of Chancellor Merkel in Europe, representing first the unity of East and West and now encouraging and perhaps underwriting unity in Europe during and beyond the eurozone crisis. Unlike the noble Lord, Lord Grenfell, I am more cautious about her recent statement to students in Berlin. On the one hand she was promising greater integration, and on

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the other defending her support for Monsieur Sarkozy in his forthcoming election. I do not see a huge appetite among European leaders generally for her thoughts of greater political union, let alone her unashamed interference in others' situations; and yet I understand her general point that, as we have seen during the crisis, EU members even outside the eurozone will have to put up with the inevitable cross-border criticism and influence which comes with a desire for the reconciliation of many interests.

After he left Parliament, my father was for 20 years an arch-Eurosceptic as the chairman of the Anti-Common Market League and the Common Market Safeguards Campaign. He was a friend and forerunner of the noble Lord, Lord Pearson, but as a physical presence he was a little more like the formidable Lord Bruce of Donington. My Liberal mother disagreed with him profoundly, and the coalition never worked. She persuaded me to read European languages and to work in Europe and later in India, so I may have ended up as a hybrid.

I am against moves towards European political unity or away from national sovereignty. I do not like referenda, or even talk of them, as an alternative to stable five-year government. I firmly believe in more enhanced co-operation rather than greater integration, and I see no reason why we cannot firmly extend the excellent principle of mutual recognition, which is already applied in European jurisprudence, to many aspects of internal judicial policy and the single market. The recent fiscal compact is a good example of what can be achieved even outside a formal treaty, and it would not surprise me if a qualified majority eventually ends up as unanimity.

Enhanced co-operation is in fashion. Schengen is another example of parallel structures: even Denmark brought in its own border force last summer. The Prime Minister's December intervention initially annoyed me as a committed European, but it was to forestall Back-Bench trouble. I see that it brought out some of the fault lines in Europe. For example, I congratulate him on making common cause with the Nordic and Baltic states last week. We need a wider Europe with more co-operation and less formal integration. We need to go on with the enlargement project, daunting as that may be, and we must keep our eye on emerging nations and their global ambitions, which I will return to in a moment.

When it comes to foreign affairs, it should always be a coalition of the willing and the powerful. I believe the noble Lord, Lord Howell, laid that out in his initial address. We have seen it in the effective Anglo-French alliance in Libya and in previous interventions in the Balkans, but I do not see those as precedents for Syria. We must concentrate on political and diplomatic influence there since we simply cannot afford further military intervention anywhere. We ought to put much more effort into stabilising the Balkans before we invite Turkey in, which I am sure we will have to do at the present rate of progress. Croatia is well in line and even Macedonia has jumped forward, provided that Greece will compromise on the name. Surely that is not an intractable problem and certainly not its most serious one.

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Much more difficult is the Serbia-Kosovo issue. Kosovo celebrates the first anniversary of its independence tomorrow. I do not want to repeat the arguments the Minister has already heard from me in a previous debate, but I expect him to confirm that Serbia is making gradual progress in the EU dialogue. It certainly would like us to think it is making progress and that only three municipalities in northern Kosovo stand in the way of a peaceful settlement. This week's referendum result in their favour proves nothing and Belgrade is to be congratulated on opposing it.

Kosovo has a population of about 2 million. It is potentially a vibrant European nation and a strong candidate for the European Union, rich in minerals and a future tourist destination, and it must even now be given quite separate representation from Serbia at international meetings to give it its own identity. I hope the Minister will confirm that its nationhood and its future membership are a priority for this country as well as for the EAS and the Commission. Serbia must surely now accept that Serbs and Albanian Kosovars should live side by side without interference, as proposed by Martti Ahtisaari in 2006.

The rule of law and support for the judiciary in post-conflict states is an important priority, and one of the things that the EU is very good at, whether in the Balkans or in Africa. This Minister hardly needs convincing of Europe's influence in the wider world of commonwealth and trade, as I know he is personally committed to these issues, as is the noble Lord, Lord Howell. However, let us lift our sights for a moment beyond the Greek drama and the eurozone crisis and consider what Europe is doing for the emerging nations and developing countries.

For example, what can Europe do with China-apart from borrowing money? Does the Minister agree that one of the most promising developments is the interest that China is showing in Africa? This is largely for business reasons, but it is making a lot of headway in hearts and minds through the building of roads and infrastructure. This could be invaluable for African agriculture and should be a space which Europe can fill too. The EU-China partnership has been well symbolised by the new African Union building in Addis, which was donated by China, and overlooks the more traditional EU delegation building. Does the Minister accept that much more could be done to develop this partnership, and is it being discussed in the EU-China dialogue?

Six of the world's 10 fastest growing economies are in Africa, and the climate for business and investment there is improving. There are many opportunities for investors in agriculture to reverse the decline in agricultural exports over the last three decades, and I commend the new report by the All-Party Group on Agriculture and Food for Development. One country where China has invested is Sudan and-assuming the oil is allowed to flow again-South Sudan. The EU is ready to assist South Sudan, especially with humanitarian aid on a considerable scale, once it has signed the Cotonou agreement. Will the UK, with its strong interest in both countries, continue to support the EU's programmes and, of course, the office of the EU envoy to Sudan?

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The EU has a range of governance programmes and support for democracy in Africa. Not many people know about them, but they include extensive election monitoring, co-ordinating the member states of the African Union. Yesterday saw the launch of the African Charter on Democracy, Elections and Governance, which embeds the principles of democracy, the rule of law and human rights across Africa, which should in turn contribute to improved peace and security across the continent. The existence of this charter will surely contribute to the credibility and transparency of the electoral process and of the institutions that we value so highly.

1.55 pm

Lord Brittan of Spennithorne: My Lords, the dramatic unfolding of the eurozone crisis, in particular the inevitable focus on the handling of the Greek situation, risks obscuring the more fundamental underlying debate about the eurozone that, in my view, has to take place. That debate is over the extent to which, for a monetary union to work, it needs to be accompanied by a fiscal union, and what the nature of such a fiscal union has to be. I am quite sure that the fiscal agreement reached by 25 of the 27 members of the EU is only a staging post in that debate.

The Government are absolutely right to say that not only is it in our interests that the problems of the eurozone should be resolved, but more specifically, as my noble friend Lord Sassoon said in this House last week,

I am also glad to note that the Government have backed away from what they appeared to be tempted to do-trying to block the use of EU institutions in the application of the new intergovernmental agreement-and have merely expressed what one might call generalised potential anxiety, saying that we will watch very carefully how that develops and reserve our position. This view was reflected in what my noble friend Lord Howell said in opening this debate.

With regard to the agreement that was reached, no one has been able to explain convincingly-to me, in any event-what that agreement, if we had signed up to it, would have forced us to do that we do not want to do or what it would have prevented us from doing that we do want to do. Leaving that broader question aside, at least we have backed away from trying to torpedo the agreement by preventing the use of the European Union institutions in its application. That not only would have caused us huge ill will but would have risked damaging the very interests that we have been trying to protect. The financial services industry is but one example. Now, why is that so? It is because for decades, under existing treaties, European legislation on, for example, financial services, can be passed by qualified majority voting. Not agreeing to the latest agreement has not changed that by one jot or tittle.

However, there has been an almost universal recognition of the very special importance for us of this sector and we have not been outvoted on any

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matters of great importance for us in the financial area. On the other hand, I vividly recall when I was in Brussels seeing Mr Tietmeyer absolutely fuming on one occasion when Germany was outvoted on such an issue. If we had sought to torpedo the new intergovernmental agreement, could we guarantee that the restraint by our partners would have continued to be exercised in the future? I very much doubt it.

Leaving aside our particular concerns, where should we stand on the debate on the extent to which monetary union can only work if accompanied by fiscal union? No one could disagree with the broad proposition that on the fiscal side the policy that is needed is budgetary austerity to reduce public debt, combined with structural reforms to boost competitiveness. However, to what extent does all that need to be enshrined in European legislation? The creation of the European stability mechanism does not answer that question, as that is a bailout mechanism to deal with a crisis, not a constitutional mechanism to create the degree of fiscal union needed to prevent a crisis arising.

Of course, the term fiscal union can mean many different things. Assuming agreement on the broad lines of the fiscal policy that is needed, fiscal union can range from organised peer group surveillance to broad rules on the permissible extent of budget deficits to the highly intrusive imposition of limits on national spending and taxation. If the authoritative article in last week's Financial Times is to be believed, the German position is that national taxes should be co-ordinated or even harmonised with national budgets supervised by the European Commission, with the EU able to insist on certain spending priorities designed to ensure that the competitiveness of growth targets are met. In addition, it has been proposed that a commitment to balance budgets should be required in national constitutions. If all those were agreed, it is suggested that Germany might then be prepared to agree to the issue of Eurobonds. Of course, it is possible that all that is a deliberately tough negotiating position floated to the Financial Times.

Whether that is so or not, I want to take this opportunity to say that I do not think that it is necessary for fiscal union to go anything like as far as that to make monetary union succeed. I have seen no evidence to support the contrary view. As long as there is an effective commitment to the fiscal policy that I have described and a mechanism of a general kind to enforce that, I see no need or reason to be more prescriptive than that. I believe that the intergovernmental agreement agreed by the 25 member states should and can provide that. I only wish that the United Kingdom had felt able to agree to join it.

If the mechanism can be established to make that agreement stick, I believe that the fiscal component required to make monetary union work would have been adequately provided. That will be necessary, but also sufficient, for the eurozone and the EU as a whole and in the interests of the UK. However, I cannot see why any further harmonisation or co-ordination would be necessary. Of course, we would be in a much stronger position to oppose such further harmonisation if we had been prepared to participate in the much

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more limited agreement that has the support of 25 out of our 26 partners. I restate that I regret that we were not able to do so.

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