I am frankly puzzled by some aspects of the steps being taken towards a banking union within the eurozone countries. They are by no means guaranteed success. This is one more attempt—there will be many to come—to cope with the chronically sick euro system. In fact, a supervised banking union is a classic example of a set of functions that need to be handled globally, not regionally, as our financial experts in the City of London know well. That is why we have had Basel I, II and now III, to police and regulate banking practices the world over. I am glad that we are keeping our own globally-related financial system well clear of this narrow banking union endeavour, although with the appropriate safeguards against discrimination within the single market, as we heard from the Minister.

There is no reason at all why a policy of much more detailed differentiation in the treatment of various functions should lead to a two-tier Europe, as I fear that the present drift of events is leading. On the contrary, detailed unbundling and dissection of blocks of competences could lead to a far more varied and less divisive Europe than we have today. The gurus who keep telling us that there is no alternative either to locking ourselves into the integration process or withdrawing are quite wrong and out of date. I congratulate more clear-thinking experts like Frank Vibert at the London School of Economics for opening our minds to this second front in EU policy development in an age of complexity. We should not be afraid of taking the intellectual lead in EU policy. Many people around the union are waiting for us to do so.

We should not be afraid of showing that the Lisbon treaty was based on a deeply flawed understanding of how the connected world now works, as many of us argued at the time. We should not be afraid of laying the groundwork for a new treaty and calling a new IGC to carry it forward. Nor should we delay while the search for a solution to the problems of the euro goes through endless false starts and unsustainable initiatives. The euro will continue to require constant and very expensive treatment to survive. Meanwhile the European Union needs to be saved, reformed, updated and put on a far more secure basis of legitimacy and political support than it has in its present dysfunctional state. In turn, that will give us in this country, as well as many other states, sensible and sustainable relationships with all our neighbours and friends within the EU and with the EU as a whole. It will also give us a modern and realistically differentiated breakdown between national and supernational powers, bilateral alliances and collectivism in Europe, which will command popular support in any referendum, where we can rely on the shrewd and unconventional wisdom of the British people.

Let us put aside shopping lists and unrealistic want lists and boldly come forward with strong pan-European ideas and proposals for a healthier union in a new

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global landscape which is taking shape. If, as we are told, treaty changes in the European Union lie ahead anyway, let us ensure that we take the initiative in shaping them and helping to redirect Europe in a sensible, workable and relevant direction to the benefit of all member states, including ourselves.

5.28 pm

Lord Giddens: My Lords, it is a pleasure to follow the speech of the noble Lord, Lord Howell, at least some of which I agree with, especially the beginning and the end. It was good at least to hear him mention the London School of Economics. I begin by noting the curiously male dominated nature of debates in your Lordships’ House about the European Union. This one is no exception. Apart from the Minister, only two noble Baronesses are contributing, and one has conveniently been placed at No. 32, propping up the list of men. Perhaps the noble Baronesses present would get together informally and see whether anything could be done about this in future.

I want to concentrate on the economic situation of the eurozone and the EU. I base what I have to say on what is probably the most comprehensive and objective report on the state of the pan-European economy, produced under the auspices of the Lisbon Council and the Berenberg Bank, which is referred to as the Euro Plus Monitor. This year’s report is appropriately entitled, The Rocky Road to Balanced Growth. Rocky road or not, the results in the report stand out sharply from the despairing tone of many commentators, particularly in the British press. The report shows that fiscal deficits in the eurozone countries are being slashed at what it describes as impressive speed. The countries that have received financial backing—Greece, Ireland, Portugal and Spain—have all moved up the scale of indicators that the report provides in the reforms that they have instituted. These are real, not formal or promised, reforms. Greece is No. 1 on the scale, Ireland No. 2, Spain No. 4 and Portugal No. 5. The one in between is Estonia, which is No. 3.

The authors state, and I agree, that it is a mistake to counterpose austerity and growth in a simplistic way. Austerity can be a potent medicine, but should be in the service of clearing the way for economic growth. As with any other medicine, refusing to take it can add to the travails of the sufferer—indeed, lead to their demise—but so can an overdose. The latter, the authors say, is what is happening in the UK, and in a much more dramatic way in Greece, which risks entering a death spiral because of the strength of the dosage being forced down the patient. Greece may be No. 1 in terms of real reform, but starts from such a low base that it ranks at No. 17 in the eurozone on the other economic scale used in the report, a scale of overall economic health.

Another tranche of support for Greece has just been concluded, but I have to agree with the authors that, from this point on, the debate about Greece should shift towards long-term pro-growth reforms. Contrary to what many say, Greece is not likely to exit the euro and it is important, as the authors say, for the European Union to produce a specific plan for the future of that country at this point.

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There are some very interesting further results in the report, which to many commentators will be counterintuitive. As for measures of economic health, the study shows a dramatic increase in external competitiveness as measured by a range of indicators, especially among most of the southern countries. In my view, that is an extremely important finding. It means that economic convergence is occurring under the pressure of change in the EU, something which the Lisbon agenda manifestly failed to achieve, economic convergence being a key condition for a return to health on the part of the eurozone economy.

The report shows amazingly widespread restructuring. It is going on almost everywhere. The authors also make the point that parallel changes to those transforming the eurozone are not happening in the United States or Japan, countries which are even more indebted than the eurozone average. If the eurozone countries can stay on the path of reform, the authors say, they could emerge as the most dynamic of Western economies. That is a big if, of course, but in the light of the data that the authors provide, it is no longer wholly implausible.

The analysis of the UK is both interesting and salutary. The UK, the report stresses, sees itself as an economy apart, with its own currency and so forth, pulled down by the fallout from the euro crisis. If the UK left the EU, it is often thought that it would be far more successful. The findings of the report do not bear that out at all. The UK is, in several ways, more vulnerable than most members of the eurozone. That is documented in detail in the report. For instance, the UK has one of the weakest fiscal positions of any EU country. Its ranking in terms of external competitiveness is no more than average, and a pretty weak average at that. In the second half of 2013, the report concludes, average growth rates in the eurozone are likely to be higher than those in the UK.

I hope that the noble Baroness will comment on those findings, based as they are not on supposition but on detailed economic analysis. I trust that her response will not consist of truisms or banalities but will be based on economic analysis in comparing the UK with the countries in the eurozone.

5.35 pm

Lord Roper: My Lords, I begin by saying how much I welcome our consideration of the legislation which will permit the accession of Croatia as the 28th member of the European Union. That is an important development and, as the Minister said in introducing the debate, the process of negotiation carried out for Croatia was very important, and more rigorous than some of the earlier ones. I therefore hope that its membership will be more successful.

As the noble Lord, Lord Liddle, suggested, it must be surprising for those arguing for minimalist membership of the United Kingdom to see that there is a continuing queue for full membership of the European Union, with no opportunities for opt-outs. I very much hope that ratification will be completed in all the member states so that accession can take place in the middle of next year, and that remaining bilateral problems will not provide obstacles.

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Lord Pearson of Rannoch: My Lords, as the noble Lord, Lord Liddle, mentioned this phenomenon as well, and turned and wagged his finger at me with great energy when he said that millions of people want to join the European Union, do those noble Lords agree that that wish is guided by the political classes in those countries far more than by the people? It is, of course, the political classes who stand to get at least 10 times their present salaries on the EU pay scale either at home or in Brussels?

Lord Roper: As we have been constrained to keep to seven minutes, I shall say no more than that in almost all of the countries that have acceded recently, there have been referendums and that, therefore, the people of those countries have given their consent to the process of accession.

Turning to the Prime Minister’s Statement, which we heard earlier, the agreement in ECOFIN and then in the December European Council on the method of guaranteeing the interests of the non-members of the eurozone as the banking union develops, is, I believe, very satisfactory, and suggests that it will be possible to find effective arrangements for those member states outside the eurozone as economic and monetary union develops to preserve the integrity of the internal market in financial services. On the other hand, it must be said that the progress towards achieving an effective road map at the European Council to develop such an economic and monetary union was very limited, and suggested that it will take rather longer than expected.

We are approaching the 40th anniversary of British accession to the European Union, and we should, I believe, be celebrating the contributions of the UK Commissioners and officials from the UK who have played a part in that development. We have heard from one, and we will hear from another shortly. Instead, we are being exposed to competing proposals for less or more repatriation of competences to London from Brussels. This was referred to in only general terms by the Prime Minister in his press conference on Friday, but may be made more explicit in his much awaited European speech.

It is difficult, on one level, to equate such proposals with the view frequently stated in this country that we should operate on a level playing field, because this seems to be an attempt to make the playing field not level. Even before President Hollande’s categorical remarks on Friday, it is very difficult to see that they would be acceptable to the other member states. Indeed, President Hollande echoed remarks made earlier this year by the German ambassador. The idea that the United Kingdom could bargain such repatriation against our support for the constitutional changes needed for full economic and monetary union and putative political union is not plausible. The other members would follow the precedent of last December and proceed with a treaty among themselves.

This is not to say that there are not many unsatisfactory aspects of the current operation of the European Union and that there is not considerable validity in many of the criticisms of it. However, we need to find other ways to implement a reform agenda. I believe that the way is to work within the union to make

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changes that would then apply to all member states. The coalition Government have already had some success in this and should pursue it.

For instance, we strongly supported the proposals of Commissioner Damanaki, first considered in July this year, which, when implemented, will fundamentally overhaul the common fisheries policy. Incidentally, they follow very closely the proposals in your Lordships’ European Union Committee’s report on the common fisheries policy, which was produced in July 2008. They would involve devolving powers over the design of sustainable fisheries to a regional and national level, so that they can design innovative and tailored policies for their seas within the overall CFP.

In another example, when he was a Minister in BIS, my right honourable friend Ed Davey, working with a group of like-minded countries, negotiated the first exemption for small businesses from European Union accounting rules, saving small businesses £400 million a year. This has led to an EU commitment to exempt small businesses from all new EU regulations wherever possible. More recently, my right honourable friend Vince Cable has put forward, together with 12 other member states, a 10-point plan for smarter regulation.

The same approach can be seen in, for example, making changes to the working time directive. These examples demonstrate the opportunities for working within the European Union to deal with problems, rather than seeking unilateral repatriation.

Finally, the balance of competences review which the coalition Government have set up may discover examples where the principles of subsidiarity and proportionality have not been followed in the past. In these cases it would seem very useful to raise them within the various institutions, with a view to changing the European Union legislation concerned. We have significant opportunities for effective reform within the Union, but not by unilateral repatriation.

5.43 pm

Lord Empey: My Lords, with regard to the two pieces of legislation before us this evening, I often wonder whether the European Union is getting too large to manage. That concern applies to those current practitioners who are in Brussels on a regular basis. With regard to the Irish protocols, I would draw the attention of the noble Baroness, Lady Falkner of Margravine, to the fact that these exceptions were brought in to persuade the Irish electorate to support the recent treaty—as the Minister conceded. To some extent, the Irish received the assurances lest they go and vote against the proposals; to some extent they were rewarded, therefore, for their opposition.

When we discuss Europe in your Lordships’ House, I often think that the wisdom of Solomon would be insufficient to allow one to navigate through the different processes and views. However, I want to mention one thing—the general rhetoric around Europe at the moment. The front pages of the press scream various things from time to time about what is wrong in Europe or what Europe is doing to this country, but they do not trace back from that point to why these things are being done. These things are

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being done because successive Governments and Parliaments have agreed to them. The European Commission has not come here and stolen the powers that it has taken away—we have agreed to these things, in our wisdom or otherwise. Successive Governments have put their hands up for them, voted at 4.30 am and done all that they do in these summits. When it was given the opportunity—which was rarely, it has to be said—this Parliament agreed to them. So when the headlines scream and we wish for someone to blame—those to blame are the people who agreed to these things. Europe is not stealing anything from this country; we gave it. When someone is given a power, we can hardly claim shock or horror when it is exercised. The blame, if you like, for where we are today is our own.

The last time people had an opportunity to have a say—when we started off in the European Union—they voted for the Common Market. My worry is this: there are certain things that it is common sense to do collectively. I cannot imagine what it must have been like for the generations that witnessed the wars and the horror in Europe; it is obvious that people would have wanted to avoid repetition of that. In addition, there is a whole range of things—the environment, air quality—where it is sensible to work collectively with your neighbours. There is nothing wrong with that. The fundamental dishonesty underlying all this, however, is that there are two thought processes here. One process looks to the market and wants to follow the open market as the main reason for doing all this. There is another, federalist group, which believes in a Eurostate. That is a perfectly legitimate thing to believe in. However, there is a fundamental dishonesty, which led to the euro crisis, because countries that were never fit for it were admitted to that currency. Indeed, even the Germans and the French broke the rules. Germany was able to recapitalise at interest rates that were entirely suitable for it, but were the ruin of some of the other eurozone countries. There is this fundamental tension. It is dishonest, because we are sitting, allegedly, among partners at the table, some of whom are plotting in another direction from ourselves. This needs to be opened out into a proper and honest debate.

The noble Lord, Lord Liddle—in a bravura performance—said that his job was to challenge the Government and see what they actually were doing. He did not burden us with enlightenment as to his own party’s position, but it seems to be in a swither and I do not know how it will end up. However, there is another thing: we undermine public confidence in the European Union in this country by pretending that things are not happening. For instance, on immigration, I asked a number of recent Written Questions. I was told that we do not routinely assess the likely number of people who will come to this country. Why not? How can it possibly be that a Government are not assessing as significant a thing as that? It is this fear of discussing something hugely significant, such as the importation of large numbers of people—as if that will not have an impact on our community—and things like that, which is undermining people’s trust. As the noble Lord, Lord Howell, said, we have to have a completely new debate with new ground rules, which has to be open and honest.

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Above all, the fundamental fault line is whether we want ultimately to go to a federalist solution with a state, having already started to put some of those institutions— such as the presidency and the nonsense of a foreign affairs service—into place, or whether we are a trade body with bits added on. We need to solve that. However, regarding the rhetoric about how awful Brussels is, which has been in the press for years and which not only this Government but others are now taking up, your Lordships should bear in mind that Brussels does what we have allowed it to do.

We need a complete rethink. We have the re-emergence in some of the southern European states of fascist parties, and we have countries such as Spain with 25% unemployment and more than 50% youth unemployment. Can your Lordships imagine what this House and the other place would be like if we had those figures? That is not the sustainable basis for democracy in the long run. I wonder whether, in order to pursue this dream that some people have, we are pushing some of these countries towards destruction by insisting on this. We need an open, honest debate but the first people who we have to be honest with are ourselves because we have agreed to all the powers that Brussels is exercising.

5.51 pm

Lord Tugendhat: My Lords, I declare an interest as I was a European Commissioner for some eight years. Watersheds in politics generally become apparent only with hindsight but I suspect that 2012 will prove to have been one for the European Union. It has of course been dominated by the crisis in the eurozone. The eurozone has survived in one piece but at a very heavy price. Not so long ago, the European Union was admired as a model for post-modern interstate relationships from which Asians and Latin Americans wished to learn, but that is certainly no longer the case. Indeed, it is the reverse as Asians compare the way in which the EU has been dealing with its problems with the way in which they handled theirs a few years ago. It has also damaged very considerably the EU’s relationships with its main trading partners in the United States and elsewhere.

Worse still is the price being paid within the eurozone itself. Although the deficit countries have made more progress than they are often given credit for in improving their competitiveness and trade balances, the burden of austerity grows ever heavier. This embitters relations between the peoples of the member states, with anti-German feeling now strong in the Mediterranean and resentment and bailout fatigue growing in Germany and elsewhere in northern Europe.

Such a situation cannot continue. To many in leadership positions in the EU institutions and in other member states, the response is to transform the eurozone from a currency union into a fully fledged fiscal and economic union. That has been the case for some time but this is the year in which those aspirations have taken physical form, with the President of the Commission and the President of the European Council both producing blueprints that would, in effect, place ultimate economic and budgetary control within the European institutions.

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I know that not very much progress has been made down that road. At the recent EU summit there was a banking union agreement, but a very partial one. I realise, too, that there are those among the eurozone members who baulk somewhat at the consequences of what is being proposed. However, it is the route map that has been set and it is one that Britain cannot go down. There are other EU members outside the eurozone who cannot do so either. Yet it would be contrary to our national interest to leave the EU and contrary to the national interest of all members, whether within the eurozone or not, for the EU to break up.

The challenge facing all EU Governments is therefore to find a way to maintain the EU in such a way that it can embrace both those who want closer integration and those who, within an overarching framework, want looser and more flexible arrangements. It is to this task that I urge British Ministers to direct their energies. I urge them to seek ways to maintain the single market, the common external trade policy and their supporting structures, from which we derive great benefit, so that they work as effectively as possible in the interests of both the euro-ins and the euro-outs. Likewise, I hope they will seek to maintain and improve the mechanisms for co-operation in foreign policy and security matters. I was encouraged by what the noble Lord the Leader of the House had to say on that subject earlier today.

As the largest of the non-euro countries, Britain is well placed to rally all those outside the eurozone behind proposals to reconstruct the EU along these lines in the interests of both groups. Of course, British Ministers will have an agenda of particular objectives that they wish to achieve; so will others. However, we are far more likely to achieve our objectives if they are presented within such a context rather than on their own or as part of a general resistance to the ideas of others.

Within the eurozone there will be those ready to respond to such an approach, contrary to what the noble Baroness from the Liberal Democrat Benches said earlier. Only last month the new Dutch Prime Minister, Mr Mark Rutte, called for the EU to carry out a review of its powers and consider returning some to the member states. He said:

“What we want to do is have a debate at the level of the 27 whether Europe is not involved in too many areas which could be done at the national level”.

While calling for “more Europe” on budget discipline and in handling Europe-wide financial issues he said that he is,

“not in favour of a federalist European state”.

I have one last point. It is not only in order to enable the euro 17 and those who want a looser involvement to work together in constructive harmony that a British plan for the reconstruction of the European Union is required. We must also bear in mind that there is no guarantee that the eurozone will hold together. Everyone, including us, needs to have preparations in place to ensure that the EU and its core structures can be maintained in the event that not all current members of the eurozone can live within its disciplines or, perhaps, within its aspirations.

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5.58 pm

Lord Grenfell: My Lords, and now for something completely different: I shall confine my remarks exclusively to Croatia’s accession to the European Union. In doing so, I declare an interest as secretary of the All-Party Group for Croatia. I am also a trustee of the Dundee Trust, an initiative of the noble Earl, Lord Dundee, which has been active in supporting community projects in that country. I have taken a close interest in Croatia since, as chairman of Sub-committee A of the European Union Select Committee at the time, I took members of the committee to three western Balkan countries in 2002 to review the effectiveness of EU economic aid in that region. That was seven years after the terrible war in the former Yugoslavia had finally been brought to an end, but the damage done was still very visible.

By 1991 Croatia was in control of only two-thirds of its territory. Only after a decisive victory in August 1995 could the process of restoration of occupied areas be completed. This small country and its people had suffered enormously. The massacres of Osijek and Vukovar will not quickly, if ever, be forgotten. However, the Croatians are a resilient people and now, 17 years later, they stand at the door of the European Union. One year and eight days ago Croatia finally signed the treaty of accession, since when it has been fully focused on its final preparations for membership.

As the Minister reminded us, the six-year-long negotiation process was far more complex and demanding than any of those in earlier rounds of enlargement. The more rigorous and more technically complex process is best reflected in the introduction of a new methodology, benchmarking. Some 127 benchmarks were defined in detail and their fulfilment closely monitored, resulting in far-reaching and irreversible reforms in all areas of Croatia’s economic and social activity. The number of chapters to be opened and closed—31 at the previous enlargement—had risen to 35, each containing a larger than hitherto volume of the acquis to be transposed in national law and then implemented. For the first time during an accession process the Act of Accession sets out detailed provisions regarding pre-accession monitoring, with six-monthly assessments by the EU Commission of progress achieved. The Commission’s November report, while noting substantial progress, pointed to three areas in which Croatia needed to do more: competition, judiciary and fundamental rights, and security and justice.

At Second Reading in another place of the European Union (Croatian Accession and Irish Protocol) Bill, the Minister for Europe, David Lidington, rightly called on Croatia to sustain the momentum of six years of significant reform, particularly on judiciary and fundamental rights. He had been in Zagreb in July and now reported:

“I was impressed with the dedication in evidence, particularly from the Foreign Minister and the Justice Minister of Croatia. They are very aware of the challenges that face their country and they are keen to prove to us as their neighbours and friends, and to their own citizens, that they can make a success of accession”.—[Official Report, Commons, 6/11/12; col. 761.]

That, as an active observer of their progress, is also my firm impression.

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However, there are, of course, still problems not yet fully resolved. More resources are needed to deal with the handling of domestic war crimes by specialist tribunals but, happily, the inadequate pace of progress has of late been accelerating. The backlog of civil cases in the courts remains a problem, but the backlog in criminal cases continues to fall. On the competition front, Croatia must make progress on the necessary market reforms of its shipbuilding sector, and it is working hard on that.

I turn now to immigration. Croatia is a small country, with a population of fewer than 4.5 million people, which incidentally makes it all the more remarkable that it should carry off three gold, one silver and two bronze medals at the London Olympics. Siren voices among Eurosceptics in Parliament and in some quarters of the media would have us believe that Britain will eventually be flooded with job-seeking and benefits-seeking Croatians despite the transitional controls which members states can apply under EU law for a seven-year period from accession. They ignore Croatia's economic readiness to join the European Union. Over the past decade, its per capita GDP has reached 61% of the EU average, surpassing several new EU member states. The Government are firmly committed to boosting economic competitiveness, sustainable growth, and an economy based on innovation and high technology. The World Bank categorises Croatia as a “high income economy” and it is one of the rare European countries to maintain and even improve its international credit rating. I do not see Croatians in seven years’ time desperate to leave and queueing up for entry into Britain. The traffic might even be in the opposite direction.

The shadow Minister for Europe, Emma Reynolds, speaking during the Second Reading debate in another place, underlined the cross-party support for EU enlargement. She said:

“The process … has provided, and continues to provide, an incentive for peace, democratisation, economic reform, the promotion of human rights, and the development of anti-discrimination legislation”.—[Official Report, Commons, 6/11/12; col. 769.]

How right she is. As she emphasised, there is also the economic case—the largest single market in the world, with 500 million consumers, grows with each enlargement. That is good news for British companies and therefore for the British economy.

Finally, the most important benefit from Croatia’s accession will be the degree of added stability that that can bring to the western Balkans. If Croatia, a once war-torn post-communist state, can transform itself through the accession process into a fully-functioning parliamentary democracy and market economy, not to mention its participation in more than a dozen UN, NATO and EU peacekeeping missions all over the world, so can the other states of this once embattled region. The example has been set. If they follow it and Croatia, drawing on its own experience, is already making great efforts to help its neighbours to do so, we will all be winners. Let us therefore fully support this Bill and give Croatia the place in the European Union it richly deserves.

6.05 pm

Lord Taverne: My Lords, I shall also concentrate on one issue—justice and home affairs. What are the Government’s reasons for exercising the block opt-out?

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Two reasons were given at a recent Law Society conference. The first was that the European Court of Justice will impose a Europe-wide criminal justice system and will erode our common law. This was also an argument advanced by the chairman of the Conservative Party and Mr Raab’s paper. The second argument presented by Mr Booth, who wrote the definitive paper for Open Europe on the subject, was that the present arrangements—as far as the police and crime questions were concerned—promoted an unnecessary supranational approach to cross-border police co-operation when bilateral arrangements could do just as well.

At this meeting, the view of the Law Society on the first point was unanimous: fears of the European Court of Justice were unjustified. The idea of a Brussels plot to impose a single common justice system on the whole of the European Union was a Euro-myth, rather like the stories that appeared in the Eurosceptic press that Brussels would ban corgi dogs, double-decker buses, barristers’ wigs and the burial of pets in gardens unless they had been pressure-cooked beforehand.

On the second question, the police were unanimous in their opposition to the opt-out. Britain has played a leading role in the development of EU police and crime institutions and initiatives and in developing—something very important—EU-wide databases. The British police and their methods are greatly admired and respected on the continent. A British policeman is the head of Europol. Britain hosts the training college for Europol at Bramshill. Britain has led many major transnational criminal investigations and has played a major role in the institution of the joint investigation teams.

Serious crime has increasingly become a cross-border activity and can be dealt with effectively only by cross-border policing, Europe-wide, not just through bilateral national co-operation. That is surely so obvious that it is unarguable. It is true of the porn trade, paedophilia rings, people trafficking—of children and prostitutes—drug dealing, money laundering, terrorist financing, cybercrime and a lot of financial fraud. There are any number of activities in which criminals are becoming ever more sophisticated and operate ever more across national borders.

Look at the successes of Europol and Europe-wide police activities. Paedophile rings have been broken up; people managing the smuggling of thousands of illegal immigrants have been stopped; a crime ring smuggling children into Britain has been broken; and people promoting the cross-border trade in prostitutes have been stopped. The list is much longer than that.

The European arrest warrant has proved a considerable benefit. It has dramatically reduced the time and cost of bringing back criminal suspects who have fled to different parts of Europe and of sending back from Britain those wanted for crimes committed abroad who would otherwise be committing their crimes here. There were some serious flaws in the warrant, that is perfectly true, but these have been addressed and, according to the Baker review, are being remedied. If we are to play a part in seeing that the reforms are the right ones, the last thing that we should do is opt out.

The opt-outers say that we can opt back into the anticrime activities. That would be much less simple than is claimed. There will be objections, and there

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will certainly be delays during which British staff will have to leave the agencies. How stupid we will look if we withdraw from activities of which we have been one of the main promoters. If we seek to opt back in to them once we have withdrawn, it will destroy our reputation in an important area where it is now high. If we do opt back into these activities and institutions, what happens then? They will once again come under the jurisdiction of the European Court of Justice. So much for one of the main objections to the justice and home affairs provisions, and for the opt-out from them.

The Government would be wise to take note of two normally conservative institutions: the Law Society and the police. Both are against the opt-out. Neither is notable for euro-fanaticism. The police in particular take a very pragmatic line. Who would benefit from the opt-out? Those who benefit would be the paedophiles, the porn merchants, the people traffickers, the child exploiters, the drug dealers, the clever fraudsters, the money launderers and, indeed, the terrorists. One of the prime duties of a Government is to protect their citizens from crime. How will the opt-out help? Who knows better about that than the police? The opt-out would prejudice the safety of the British people.

I hope that my noble friends on the Conservative Benches will note what the current head of Europol, Rob Wainwright, wrote in a paper in May:

“in my world, the EU works”.

I end with a quotation from that well-known Eurofanatic, the noble Baroness, Lady Thatcher. She said in her Bruges speech:

“I want to see us work more closely on the things we can do better together than alone. Europe is stronger when we do so”.

6.12 pm

Lord Kerr of Kinlochard: My first task is to commend to the House the EU Select Committee’s timely report on European banking union. I do so in the absence of the noble Lord, Lord Harrison. This is a riveting report and a riveting read. Clearly, the Leader of the House, given his polite remarks about it, has already studied every word closely. I congratulate the noble Lord, Lord Harrison, whose sub-committee produced it, on his sagacity. He had to deal with some pretty intractable material; I do not mean just me and the noble Lord, Lord Hamilton of Epsom, but the issues, which are quite difficult. They certainly engaged ECOFIN and the European Council last week.

We spent the autumn taking evidence from, among others, the president of the European Council, the Commission vice-president, the vice-president of the ECB, the chairman of the EBA and the Financial Secretary to the Treasury. Our conclusion was that, given the urgent need to break the vicious circle between banks and sovereign states, there was much sense in the Van Rompuy three-pronged approach: a single supervisory mechanism, a common resolution mechanism and a common deposit insurance scheme. We were concerned that the second and third elements had been consigned to the back-burner; we thought all three were necessary. However, we thought that the

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SSM proposal—the supervisory mechanism—was an important first step, and we accepted that the ECB was the appropriate institution to take on the role.

We stressed the need for triple safeguards, first, to deal with possible conflicts in the ECB between the requirements of monetary policy and concern for the banks under supervision; secondly, to ensure equality in decision-taking between euro-area countries and those non-euro-area member states which wish to participate; and, thirdly, while respecting the ECB’s independence in its monetary role, to provide for effective accountability in the supervisory role, including to national parliaments as well as the European Parliament.

The agreements reached in Brussels last week are only partial and will be reviewed in the European Parliament this week in respect of the EBA. However, I note that the first two safeguards, which we thought important, appear to have been secured; there will be strict separation of supervisory and monetary policy tasks; and the eurozone and non-eurozone member states participating in the mechanism will have full and equal rights. I also note that the new regime will, at least at first, apply only to a small minority of participating member states’ banks. In our report, we thought this realistic. We thought it unrealistic to envisage the ECB taking on intensive supervision of 6,000 banks straight away. We suggested that it should focus on the largest cross-border, systemically important banks, but with the power to step in quickly in respect of others if need be. Possibly for slight different reasons, Mrs Merkel seems to have taken the same view.

In our report, we noted that though—I would say “because” but the report says “though”—the UK would not participate, UK interests could be affected, with a significant risk of our becoming marginalised as others move towards closer integration. We thought that the EBA, the organisation tasked with building a rule book for all member states, could itself be marginalised, or find its decision-taking predetermined in the ECB or by caucusing among SSM member states. We called on the Government to do all in their power to ensure that London’s pre-eminence was not imperilled. It is clear that the Government took these risks seriously. They have secured Council language promising a level playing field between member states that take part in the SSM and those that do not. They have also secured the double-majority voting system for the EBA, which the noble Lord the Leader of the House described and the strength of which he said was rock solid. My noble friend Lord Williamson asked whether it was watertight; some think that it looks a little fragile. That is no doubt one of the points to which the Committee will return as we go on watching developments in banking union in the weeks and months ahead.

Until now, in speaking of the report of the noble Lord, Lord Harrison, I have tried to emulate his admirable even-handedness, breaking with the habit of a lifetime. I will now add two more personal and more partisan points of my own. They are gloomy predictions. I know Cassandra’s fate, but her track record, sadly, was very good.

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First, although there is disagreement across the EU—including, strikingly, between Paris and Berlin these days—about the appropriate pace, there is near-unanimity on the direction of travel. The papers which the European Council considered last week made it clear that the SSM, the banking supervision arrangement,

“will constitute a first step towards a financial markets union”.

For most member states, what is envisaged is the deepening, the further integration, of the single market. Our Government take a different view, as our Prime Minister explained after the October European Council:

“you do not need a banking union because you have a single market; you need it because you have a single currency—so Britain should not, and will not, be part of that banking union”.—[

Official Report

, Commons, 22/10/12; col. 699.]

After this European Council, the Government take pride in having secured a promise of,

“full respect for the integrity of the single market”.

However, those words have a different meaning for those who see the single market not as a finished artefact to be preserved, but as a process to be pressed forward in everyone’s interests. That is what we used to think, because we believed that the general EU interest in open, competitive markets coincided with the UK interest, including in the health of the City of London. That is why the noble Baroness, Lady Thatcher, fought to obtain qualified majority voting for single market legislation. That is why UK Governments and UK commissioners drove the process forward. They were right; London did benefit, strengthening its lead as Europe’s pre-eminent market.

However, looking ahead, as eurozone Finance Ministers meet more and more often with their other fiscal and banking union colleagues, but without us, it seems reasonable to suppose that they will from time to time discuss financial market legislation. When such legislation comes to Council, they will have their qualified majority. As the Leader of the House clarified, the double-lock majority system, about which my noble friend Lord Williamson was a little sceptical, applies only to the EBA, not to the Council.

The French say, “Les absents ont toujours tort.” I wonder whether it is plausible that those envisaging and working for a financial markets union will always agree that its principal location should be for ever offshore. What we have been hearing from Paris from Monsieur Noyer in recent weeks could be a harbinger of real perils ahead.

My last point is that talk of a “new deal” to be negotiated after the election alarms me, whichever side of the House it comes from. I was encouraged by many aspects of the speech made to the CBI on 19 November by the leader of the Labour Party, although, for me, it did not excuse the irresponsible alliance of opposites struck with Eurosceptic Conservatives to seek to embarrass the Government on the EU budget. But even Mr Miliband spoke of working,

“to ensure that this more flexible European Union, where some countries pursue deeper integration and others don’t, still benefits all”.

In my view, the others he speaks of are very few and not very popular.

In his October Berlin speech, the Foreign Secretary spoke of many countries wishing different kinds of integration. Most member states actually want to stick

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together, in my view. We in Britain resist the idea or talk of a two-tier Europe; we prefer to talk of multi-tier or variable geometry or flexibility. Yet our friends abroad are sadly noting that a common feature nowadays of the groups who opt out—or choose to stay out—is that Britain is in them all: monetary union, banking union, fiscal union, Schengen, and now apparently justice and home affairs. We used to try to shape EU developments. In US football parlance, we played offence. Now we play defence. Our aim is to stop further integration, or at least to ensure that we do not have to comply with it. We used to look for opportunities; now we see only threats, perhaps because we are always looking over our shoulders at UKIP, whom I look forward to hearing from later in the debate.

Against that background, I think we have to recognise that we are losing our friends in Europe. Supposing we turn up after an election seeking a “new deal”, which would mean that we would remain full members of the single market, although we are perceived as obstructing or opting out from its further development, while trying to insist that EU laws affecting social policy, or labour costs, or fisheries or agriculture would not apply to us, or brandishing a totally new blueprint of the kind recommended by the noble Lords, Lord Howell of Guildford and Lord Tugendhat. Is it realistic to expect that such proposals would win the necessary unanimous support of all other member states? Unanimity is required to change the treaties. What we heard from Paris, from President Hollande, last week may be indicative. I think we might well be told to make up our minds, either out or in.

As the Prime Minister prepares his long-awaited EU speech, I really hope he will avoid the temptation to hold out a false prospectus. One should not talk about “new deals” unless one is sure that they are realistic. Better still, when thinking about UKIP, remember Kipling and his warning that the trouble with paying the Danegeld is you never get rid of the Dane. They will always come back for more. You have to stand up to them and make to the people of this country a realistic, positive case for Britain’s EU membership.

6.24 pm

Lord Renton of Mount Harry: My Lords, I always enjoy listening to the noble Lord, Lord Kerr, and today was no different. However, for a few minutes I intend to talk about something quite different and perhaps much more humble. I shall respond to the views of some of the Conservative Party, not obviously in this House, but in the House of Commons, who wonder whether we should be in the European Union at all. We have not heard anything of that today, but I know that it is muttered about a good deal in the House of Commons at the moment.

I regard not being at the heart of the European Union as unthinkable and dangerous to our prosperity. I make no bones about this. I have always been a strong believer in the value of the European Union and in Britain’s full participation. I was influenced in this by having a Spanish great-grandmother and a German grandmother. Perhaps they drove me on. I followed Ted Heath in the 1970s and Ken Clarke in the

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1990s and I have always thought that the pathway for the United Kingdom should be a leading role in the European Union.

I still have no doubts about that but I realise that, if I look ahead 20 years, say, I can see China close to the USA in its strength and ability to dominate trade throughout the world and it is followed by Russia, India and Brazil. Where will we be if we are by ourselves, with just 60 or 70 million people? We certainly will not be dominating the international banks as we do now, or leading the United Nations assistance to Africa. If we are to be effective as a country in the years ahead, I believe that we will need to have a leading and active part in a European Union which has country members stretching from Poland to Bulgaria and, because of the size of our collective trade, our voice will be listened to and followed.

Clearly, there is a danger ahead, for the reasons I gave at the beginning of my speech. I would very much like to see more direct discussion with our parallels in the European Parliament and in other European member countries. This simply does not happen enough at the moment. I have served on three sub-committees of our EU Select Committee—I am a member of one of those committees now—and I have been on the main committee. We have produced wise and thoughtful reports, but they are always British reports and I do not think that they are read by anyone outside this country—or certainly by very few people. Surely we need to change this. We need to make reports and decisions collectively with our European colleagues so that we talk and agree together about how to increase the trading strengths of the European Union.

The important point at the moment, of course, is the discussion about the budget for the European Union Commission for the next seven years—2014 to 2021. This budget is being discussed at the moment and questions about how much it will go up and whether it will go up at all are on the table. However, who among us has had the opportunity to talk to colleagues in Germany, France and Poland about the amount of money being made available to the EU over the next seven years and how it should be spent? That surely should be our challenge at the moment. All of us who support the European Union should surely be beating the door to the Commission and demanding involvement in the vital financial decisions that are ahead. We should be taking part in establishing the crucial programmes in the new budget and which ones could be dropped, because there are some of those too.

The Commission plays off one against another, determined to increase the amount of money it is going to get from the 27 countries that are now members of the EU. A balance needs to be struck. Surely there has to be more involvement and more discussion among the members, not with the intent of destroying the European Union but, rather, with a view to being determined to make it work better and more effectively in the years ahead. That should be our challenge. If we can succeed in that, our success will be blessed by our descendants.

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6.30 pm

Lord Monks: My Lords, I start by declaring an interest. I act from time to time as an unpaid adviser to the President of the European Commission.

I certainly welcome this debate. It is very timely and inevitably it is centring on the UK’s awkward relationship with the European Union. As we have heard, the Prime Minister is poised on the verge of a major speech that will define future policy—at least, that of the Conservative Party—towards the EU. I am not sure whether this speech will pre-empt the current review of the balance of competences, which is a major government exercise, and I should be grateful for clarification on that. Whenever he gives the speech—perhaps over the next few months—will the PM not be jumping the gun? He will no doubt seek to differentiate between his role as Prime Minister and his role as leader of the Conservative Party, but will others understand this distinction? Will the Liberal Democrats, for a start, understand it? I certainly do not think that other EU leaders will, and there will be the inevitable risk of a further deterioration in UK relations with the EU. As I said before, should not the PM at least wait for the completion of the review of competences exercise?

I recognise the pressures on the Prime Minister. Those who yearn for a UK free from and unfettered by ties to the EU continue to push him towards a voluntary Dunkirk. They see the world through a sepia lens, clouded with nostalgia. They ignore some uncomfortable truths, such as the extent of foreign ownership of the UK economy, some of which is here to take advantage of the EU single market. They do not address the issue of whether UK companies are perhaps too vulnerable to foreign takeovers, especially as they become cheap following devaluations of sterling. For example, when Cadbury fell to Heinz, we could have done with more pressure on that American company. Where were the nationalists then? I never heard a squeak. Nor do they address the question of what an exit or a transfer to a new semi-detached status for the UK would mean for social policy. As my noble friend Lord Liddle said so well, the working time directive is a frequent target, but the UK—wrongly, in my view—already has an opt-out from the 48-hour week. What more is required? Do they mean the minimum entitlement of four weeks’ paid holiday? That was a big step—perhaps the biggest social step that Europe took. So when there are remarks about all this social nonsense, that is what they are talking about: a minimum entitlement of four weeks’ paid holiday. Before that, the entitlement for many workers was less than three, and the average was about three weeks for manual workers.

So what are we actually on about? Are we talking about the underpinning of maternity rights, the right to information and consultation on major decisions, or the European Works Councils, with which about 450 British companies are entwined at present? I could go on. What do the Eurosceptics mean in relation to social policy? By the way, all these measures are gladly accepted by the Eurosceptics’ current pin-up, Norway, and the noble Baroness, Lady Falkner, gave further details about Norway’s entanglement with the EU.

More fundamentally, the Eurosceptics fail to see that Governments in the West and elsewhere have been weakened by globalisation, by the rising power

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of multinational companies and by foot-loose capital and the bond markets. This is highlighted very well in the recent report from the United States National Intelligence Council. These constraints on national freedoms are far more significant than our obligations to the EU. However, what do we hear from the nationalists and the Eurosceptics? Not a squeak. Indeed, the EU offers a better opportunity of standing up to the dark side of globalisation than any individual member state can have, yet the UK continues to seek opt-outs from measures such as a financial transaction tax and, now, a peg on bankers’ bonuses. Despite our claims of affection for the single market and our love of free trade, we seem to be protectionist when it comes to the City of London.

I am critical of the EU from a different perspective. It has seemed that the EU has often tried to reduce labour costs to German levels, and initially it used the economic crisis as an opportunity to do so. Instead of treating Greece as the US did after World War 2, initiating the Marshall Plan, or treating Greece as the EU, including the UK, did in relation to failing banks, it applied moral hazard—a punishment of almost Old Testament class—and extended this to Ireland and Portugal. This approach, I am pleased to say, has now softened, and it is important that it does. A transfer union is slowly emerging. Reading last Friday’s conclusions of the European Council, I note that there could be some return to the concept of “social Europe”. Do noble Lords remember that? It made Europe popular, at least on the left side of politics under the presidency of Jacques Delors and certainly in the trade union movement. I believe it is about time that we revisited the lesson that a single market needs some good and popular tunes.

I hope we will see some of these social issues being tackled, including at European level, and I hope very much, too, that we move on the issue of mobility and collective agreements. I do not have time to explain that at present but will do so on a future occasion.

In conclusion, surely we should look to learn some lessons from the other side of the North Sea—from the other countries which are successful in Europe. We must stop turning away from the central part of the EU towards the fringes and to some mirage—or perhaps it should be called a “Farage”.

6.37 pm

Lord Maclennan of Rogart: My Lords, before the start of this debate, we heard from the Leader of the House that Europe is in a state of flux, and that is clearly so. I think it is necessary not just to reconsider the incidents that have made this such a frightening year for those who see the future of Britain as being properly tied to the European Union but to reflect on the reasons why we went into the European Union. It appears to me that we have lost sight of that. Harold Macmillan clearly had the view that this was the way to prevent Britain falling into isolation. Harold Wilson iterated the possible alternatives: isolation or perhaps an Atlantic free trade association. In passing, it is interesting that that possibility is being considered at the institutional level in the European Union. Then there was Edward Heath. Perhaps one of the most

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clear-headed observations was made by Harold Macmillan’s Chancellor of the Exchequer, Derick Heathcoat-Amory, who described membership of the European Economic Community as a,

“political act with economic consequences”,

and not the reverse.

We have heard experts on the economy in the debate this afternoon, but there has been very little consideration given to the political consequences of our trying to carve out a special position for this country alone. It seems that we, as a Government, have bumbled along this route. The veto on the fiscal pact about a year ago has begun to turn European Governments into a state of hostility, rather than them being our allies or friends, or agreeing to understand our positions. We did not help the process of maintaining a closeness from which we can influence outcomes much better by the vote which took place in the House of Commons on the European Union budget; nor have we done so by repeated references to a referendum on a new deal. Frankly, we are at risk of making our negotiating position in the European Union almost impossible to discharge. For that, I am afraid I take the view that the Prime Minister himself has a high degree of responsibility.

We have seen divisions in the ranks of the Conservative Party in another place. The way to deal with that is surely to talk to the British people about the advantages of membership of the European Union, instead of constantly harping on about what is under the microscope at present. It has not worked with the rightward-leaning half of the country. We have seen, at Conservative expense, the growth of UKIP, whose European Parliament members have a rather remarkably absent position in the Parliament to which they have been elected by their constituents to do some good. How many of them, including their leader Mr Farage, have been there for the critical votes? That will become very clear at the next elections to the European Parliament. We will draw attention to the absence of the UKIP voice in Brussels and Strasbourg.

We must also put up with an anti-European media. This is another reason why it is so important that politicians speak to the political consequences of the dangerous course that we are following. In this short debate, I suggest that we need reform in the European Union: we need to focus on what Europe can do and to transfer the powers accordingly for things that can be done only at European level, such as arranging a negotiating position on global warming—something that we singularly failed to do in Copenhagen—or on security of energy supply. Those are the sorts of things that we must make sure that the European Union is able to take on board and deal with.

The influence of Britain in and through the European Union can be much stronger. We will see greater investment in our country in the decades ahead if we strengthen, rather than weaken, our position there. The prospect of being isolated—of “brexit”, as it is called—is hideously fearful. We are seeing the growth of China, India and Brazil but, if we leave, their investment will not come here. These are simple political truths that the public must take on board.

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6.45 pm

The Earl of Sandwich: My Lords, I am another who views Euroscepticism in the Tory party with concern, partly because it is based on pure fantasy. Beyond the single market and a remote supervisory banking role, the UK will never have anything like a fiscal and monetary union. It is absurd that a referendum should be called on that basis. It is an Aunt Sally—or, as the noble Lord, Lord Monks, described it, a Farage—and the electors will obviously reject it.

The Economist last week said that:

“Britain's position in Europe may become untenable”,

if the eurozone countries are bound much more tightly. This is a gloomy and unlikely forecast, but I agree with the conclusion that,

“the best course is to stick close to Europe, and try to bend it towards Britain”.

We all know that politicians play largely to their own crowd. The dangled referendum is a card played, not a serious proposition. I see the Government’s review of competences as a cumbersome exercise, but also a rather clever political attempt to shore up the coalition and postpone the referendum until such time as they see that people understand what Europe is really about, because it is about a great deal more than the euro: it is about the stability of a whole continent, as we heard indirectly from the noble Lord, Lord Grenfell.

While in Brussels a fortnight ago, I was much less worried because for the moment we have a lot of friends in Europe. I believe, paradoxically, that we are at the centre of a much wider and more interesting Europe and have been for some time. This is the Europe of enlargement, in which we have played a prominent part from the very beginning. Enlargement is happening. I declare an interest as a keen member of the EU Committee currently conducting an inquiry into enlargement. From what I have heard so far, I derive a lot of encouragement, as the Prime Minister should, from the leadership that this country has demonstrated in the EU in foreign policy over many years, and notably in the opening up of eastern Europe after the Cold War and then the western Balkans since the break-up of Yugoslavia.

Four of us from the Committee met Commissioner Štefan Füle as well as Ambassador Drobnjak, who was previously Croatia’s chief negotiator on accession. We learnt that while Croatia is now seen as a success story, having dressed all its wounds of war, its accession process has become much more individualised and more gradual compared to that of, say, Bulgaria or Romania. This more complicated process will have—and already has—implications for the countries currently in the queue, such as Serbia, Kosovo, Montenegro and Macedonia, and how they progress towards candidate status and eventually, they hope, membership of the EU. Our report is likely to be published in March, and we hope that anyone with an interest in this area will want to read the report and debate it in due course.

We were with Commissioner Füle just after there had been a breakthrough in the dialogue between Serbia and Kosovo. The two leaders, Kosovo’s Prime Minister, Hashim Thaçi, and his Serbian counterpart, Ivica Dacic, agreed to implement the integrated border management agreement along their common frontier. This sounds very technical, but means in practice that,

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in spite of considerable local protests from the Serbs, the double checkpoints at Jarinje and Merdare have been combined under one roof. Two more will be operational at the end of the month. This is a significant development. For the first time Kosovar and Serbian police, previously 10 metres apart and observed by EULEX officers, will jointly control these border crossings. There will be much more to discuss when the two leaders meet again next month, notably the issue of law and order and how the northern enclave can be made safe. The EAS, under the noble Baroness, Lady Ashton, has made this dialogue a priority, but it is painfully slow.

It is said that after Croatia, accessions may seize up because of enlargement fatigue. I doubt that this will be the case. One reason is that conditionality is no longer one size fits all. It has variable geometry—or, as the noble Lord, Lord Howell, said, differentiation. Like English case law, it rolls like an uneven snowball, collecting different models as it goes along. As well as compliance with the Copenhagen principles and the acquis, we now have co-operation and verification, stabilisation and association, bilateral issues, opening and closing benchmarks and the new emphasis on the rule of law. These are all the clothes of enlargement, and from now on if they do not fit the client, the client will have to remain a neighbour or partner until they do.

Bilateral issues are not supposed to slow down the accession process, but if they are as fundamental as those between Serbia and Kosovo, how can they not? Croatia, on the other hand, has only minor bilateral issues remaining, and its performance on the issues of the tribunal and Chapter 23 has won widespread approval. So enlargement will not seize up but will roll slowly and uncertainly forward. It could be eight to 10 years before another Balkan or neighbouring state becomes a full member. Meanwhile, the UK will earn brownie points by continuing to foster the process in countries such as Bosnia, Herzegovina, Serbia and Kosovo. If the EU truly deserves its peace prize, it must stay the course in countries that were born out of ethnic conflict not so long ago—as the noble Lord, Lord Owen, will perhaps remind us—and that still carry the scars of genocide and persecution.

We should not forget that we stood by—and fought by—these people in the Second World War while they endured yet another tyranny. Kosovo, for example, is one of those historic touchstones of conflict in the Balkans that has to be nursed very carefully towards peace and stability. Enormous efforts and resources have already gone into the EULEX project and, not surprisingly, the auditors say quite bluntly that not enough has come out the other side. The paradox is that either Kosovo is a post-conflict country—perhaps the poorest country in Europe—with many destitute people needing aid and basic necessities; or, as its leaders claim, it is a modern European state in the making, seeking full recognition and proceeding through the stabilisation and association process towards EU membership. Which is it? We may like to think that it is the latter, but several countries will not agree because of their own fears about internal secession.

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The UK has closed its official DfID programme but is rightly giving a lot of behind-the-scenes political and parliamentary support, and our own clerks have been lending expertise. The Foreign Secretary has recently shown his commitment by travelling in the region. Surely the Prime Minister can claim the high ground on enlargement while he is performing his pas de deux with Chancellor Merkel around monetary and economic union. Will the Minister at least confirm that the Government will make a little less play of union and a little more of enlargement?

Finally, what will happen to the outer ring of countries such as Georgia and Ukraine? The neighbourhood policy is the only way forward; perhaps it should not be defined too sharply. Iceland already has advantages and will try to jump the queue. Georgia and Ukraine have a long way to go. Turkey seems to be on an eternal wheel, gently encouraged by the EU’s “positive agenda”. The point is that, in this voyage of enlargement, there can be no horizon.

6.54 pm

Lord Jopling: My Lords, I was particularly interested in the noble Earl’s speech and will return in a few minutes to the problems of the western Balkans. First, I refer to a theme that has run through the debate: how we might change our relationship with the European Union, and how the European Union itself might change in future. I wonder sometimes if those who see little good in the European Union realise what the effect is of the continual drip of the slagging-off of the endeavour on the United Kingdom’s effectiveness within the EU. What is forgotten is that if we want changes in our relationship with the EU, it is important that as many other people within the EU as possible are sympathetic to us. Sometimes the way this is carried on has the opposite effect.

Years ago, I had experience on the Agriculture and Fisheries Council. I followed a series of Ministers including Peter Walker, Fred Peart, John Silkin and Cledwyn Hughes, most of whom were less than sympathetic to what was then the EEC. All my life I have felt that membership of the Union is in Britain’s interests, in spite of some of the daft things that it does from time to time. It is 55 years since I proposed a motion on Europe at the Conservative Party conference. That was the first time that the party discussed Europe.

On the council it took me quite a time to convince some of my colleagues that I was sympathetic to the whole enterprise. Once they realised, I found it a great deal easier to get them to listen to my problems. That is what I mean when I say that I am concerned that with the torrent of abuse of the EU from some quarters, we are shooting ourselves in the foot and making things much more difficult than they need to be. I suppose that those who say that we must come out of the Union altogether may consider what I say as grist to their mill. However, those who would like to continue to be part of the Union—but with changes—might recall my experience. I will give a further example. In the past few days I heard a report from an official connected with Brussels who said that he saw no point in answering some of our questions because the United Kingdom was so detached. The word he used was “parochial”.

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I come back to the speech of the noble Earl and will speak about EU expansion. In recent years in particular, the accession of Romania and Bulgaria prompted a great many people to ask questions such as: was it too quick? Were the conditions that the European Union demanded for membership properly executed? The Minister told us, on the subject of the Croatian accession, that never had more stringent conditions been imposed. I was very glad to hear it, but the implication was that some of the earlier accessions were squeaked through without an insistence on the full meaning of the conditions.

The difficulty is, of course, that once a country has become a member state of the EU, it becomes much more difficult to demand that the standards that were originally insisted on are introduced. We heard in a speech from the noble Lord, Lord Grenfell, that Croatia will shortly join the Union. I have visited Croatia twice in the past two years, and it feels like a European state. I hope that the conditions that we imposed have been enforced.

During the past year I have visited Bosnia, Serbia and Kosovo, where there is much instability. Progress in Bosnia is hampered by the existence and the obstruction of the Serbian enclave in Republika Srpska, based around Banja Luka, which I have visited. In Kosovo, which I visited only a few months ago, progress is likewise hampered by another Serbian enclave in the north, which is based around Mitrovica.

The various leaderships, in Sarajevo, Belgrade and Pristina, as well as those in Banja Luka and Mitrovica, are all, as we know, still capable of serious political mischief-making. The continuing disputes in that region of the western Balkans could so easily turn much worse and revert to the dreadful bloodshed of only a few years ago. However, the factor common to all those countries is that they are dead keen to join both the European Union and NATO. I hope, therefore, that there will be no fast-tracking at all of the negotiations over the entry of Serbia, Kosovo and Bosnia.

We have the opportunity to use the prize of European Union membership to insist that the obstruction and hatred which surround these places are set aside by permanent commitments and settlements of their differences, quite apart from our insistence on European Union standards. I understand that some of the reasons for their differences can be seen in their recent history, which has been dreadful and bloody. However, we have the opportunity to use our strength to insist that they be settled on a permanent basis if we have the strength to broker a peaceful future in this war-torn region. We should make the best use of it.

7.03 pm

Lord McConnell of Glenscorrodale: My Lords, I start by referring to my register of interests and my education work in Croatia. I welcome today’s debate. I hope, given that it is included with the debate on the two Bills before us, that we will perhaps have another opportunity in the new year—maybe after the Prime Minister’s much-heralded speech on Europe, that which we seem to be looking forward to—to have an even longer and more detailed discussion on these important topics.

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In relation to the two Bills, we clearly need to accept the decision that there should be a commissioner for every member state, at least in the mean time. However, that should not stop the United Kingdom from continuing to press for reform within the Commission, even with a commissioner for every member state. The next Commission should operate in a different way from the current one, which has so many departments and acts in such a wasteful fashion.

On the other issue before us in legislation today, the accession of Croatia, I welcome every word that has been said by the noble Lord, Lord Grenfell. The Croatians strike me, in my experience of them over recent years, as having some of the strongest national pride and belief in freedom of almost any people that I have met anywhere in the world. They have an incredible history, particularly the former city state of Dubrovnik but elsewhere in Croatia too. Modern-day Croatians have a sense of nationalism and national pride that as a Scot I found almost exhilarating; it was even greater than anything I had experienced at home. Yet that country, which has that sense of freedom that it fought for not long ago, and which sacrificed thousands of lives in order to secure the freedom that it wanted from the former Yugoslavia, voted last January by a majority of two to one to join not only the European Union but the euro as well.

The Croatians voted to join the second most successful voluntary union of nations ever in history—the first, of course, being the United Kingdom. They did that not because they are naive; the young people of Croatia are not naive but just as cosmopolitan, outward-looking and smart as young people anywhere else. They are excited about this but also very pragmatic. They recognise that in today’s world the pooling of sovereignty—not just the seat at the table, or the benefits that come from the odd grant from the European Commission—is an essential part of contributing to today’s world and looking after our common and individual interests. That is why there is a queue of countries, not just in that part of Europe but elsewhere, that want to join them too.

I will say, very specifically, that in these debates in the UK over the past decade or so, far too often we get into a debate about what is the actual material or even sometimes political benefit, in a very parochial sense, of being at the tables of the European Council. That is not the main issue here, which is: do we want to live in isolation as the United Kingdom, or do we want to live as part of a pooled group of nations that work together not only in their internal interests but externally? In the areas of justice, home affairs and the economy, for which there is that common responsibility, as well as in the area of external relations, there is of course a case for pooled sovereignty in today’s world. That sometimes has to be backed up by laws passed at the European level. We should show leadership in this Parliament in making that case to the people of Britain, not shy away from it.

There are, of course, negatives about the European Union, which we would be foolish to ignore, in the same way that Scots would be foolish to ignore the negatives about the United Kingdom. In the European Union you have waste and a flawed Lisbon treaty—the

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most recent attempt to try to modernise and reform. You also have the problems with the euro, though at present most of those are problems with the bad financial management of national Governments within the euro. There are positives too, though, such as the peace that has existed in western Europe and now across the rest of Europe too; the single market and the social benefits that have come alongside that in a balanced approach; and the global impact that the EU has had on aid, trade and the environment.

I make a plea to the Government. Political leadership is not only about tactics. I must say that this is true in all three parties at the moment. It is not only about trying to get the better of the other parties in relation to a referendum or any other immediate tactical issue. It must also be about vision, setting out a case for our rule in the world and in Europe and working out how the two go together and how we can then make the best use of them.

I will touch on one other issue: the EU’s aid budget, which might be an almost unintended casualty of the current debates on the EU budget. Whoever is responsible for the current financial crisis in Europe and the Brussels overspend, it is not the people who live in the poorest parts of Africa, Latin America or Asia, who currently benefit from the EU aid budget. The UK has made a proposal to freeze the budget, which I do not necessarily disagree with, but if cuts are made proportionately across all budgets, there will of course be an impact on the aid budget as well. The permanent President of the Council made an outrageous proposal that cuts to the EU aid budget should be disproportionately high in comparison with cuts in other departments, in order to save the subsidies for some of the waste that goes on in the departments that he and President Barroso are responsible for.

For me, this is both morally wrong and makes no logical sense. In the UK, every penny that we take out of the EU aid budget will simply have to be put back in again from our own DfID budget because we have committed to the 0.7% international target. If other countries in Europe want to cut the budget, they will have to do the same thing in their national budgets because the EU spend contributes to our own aid and development assistance target.

Here we had our own aid review. DfID and the former Secretary of State, Mr Mitchell, undertook a multilateral aid review that showed, in an analysis that was quite hard and took money away from a number of multilateral organisations, that in meeting the UK’s aid objectives the European Development Fund was rated strong. In having organisational strengths to use that money effectively, the fund was strong and, in its ability to change and reform, which it is currently doing, it was more likely than most to do that. It would be a terrible signal, in a year when the G8 comes back to the UK, for us to lead an initiative on the budget that led to a cut in the EU aid budget.

Whatever views we might have across this House and the other place on the EU budget, whatever differences we might have over the coming weeks, the one thing that I hope we can all agree on, because it makes moral and logical sense, is that when we are

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cutting the EU budget over the next financial programme we should cut waste and cut subsidies that stop commerce, but we should not cut the money that goes to the poorest people in the world.

7.12 pm

Lord Risby: It is a great pleasure to follow the noble Lord. There has at times been something of a debate about whether the EU or NATO has contributed more to peace and stability in Europe. But, surely, the most welcome accession of Croatia answers that question.

It was a moment of great joy when the Berlin Wall came down. During the preceding decades it was NATO that resisted the threatening assertiveness of the old Soviet bloc. In the end, their economic contradictions became overwhelming. However, there were anxieties about the political course of post-soviet European countries. But the role of the European Community in securing their democratic underpinnings is beyond doubt. With carrot and stick, but with genuinely altruistic intentions, the political, social and economic landscape was transformed in these countries. We ourselves, through the Know How Fund and the Westminster Foundation for Democracy, inter alia, helped in this process. Therefore, the accession of Croatia should be seen in the context of a European enlargement process of dramatic historic importance.

The inevitable crisis that has infected the eurozone, built on a false architecture, means that we all have to examine the perceived certainties that have widely prevailed in Brussels and elsewhere and reorder the structures that were questioned only by a small minority in the past. Indeed, the pillar on which the EU developed was the relationship between France and Germany. Over time relationships can be re-established, but the bilateral fissures between France and Germany that now exist are deep and open, and the anxiety about that is freely reported constantly in the French media. President Hollande promised to counter austerity, but reality dictates great limits to that. When the word “solidarity” was repeated yet again about the European budget, it failed to resonate as before, and with German interests very different about some of France's long-held interests, change is undoubtedly in the air.

That is why the new banking union is important. While there are huge problems within the European economy, it increases the prospects of greater regulatory stability within the eurozone. Very importantly, it establishes the principle that the interests of non-participant countries will be protected, with majority voting now required in the European Banking Authority for both in and out members. It also incorporates a provision that the ECB will not discriminate with financial regulation against a single or group of countries.

The eurozone crisis has brought about a recognition that there have to be even more flexible arrangements to incorporate all 27 member states, and any future newcomers. We already have different arrangements with regard to Schengen, the single currency, and indeed direct relationships between EU member states—for example, our extremely close and valuable military and defence relationship with France.

We have often heard the word “marginalised” in respect of the United Kingdom. Indeed, it has been something of a mantra; a kind of reflex reaction. But

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we are now seeing a more subtle process at work. We saw it in the banking negotiations and in the budget discussions.

I shall dwell briefly on the lead-up to the banking union agreement. Frankly, for years, proceedings at ECOFIN meetings were not exactly made smoother all the time by a previous attendee. When the financial and banking crisis descended on us and the desire grew for new regulatory structures in Europe, the failure of our own tripartite regulatory system considerably reduced our credibility. Indeed, there was at times an edgy response to our legitimate concerns expressed about the future of the City of London. As we have seen at the budget discussions and latterly the banking union agreement, the word “marginalised” has become misplaced. A huge effort has been successfully undertaken by the Prime Minister and the Chancellor of the Exchequer to explain patiently, courteously and comprehensively our points of view.

It is in that spirit that the balance of competences review is to be applauded. European directives have for far too long been interpreted here in a black and white way, all too often leading to misunderstanding and anger. This is a dispassionate and professional exercise that will give us an insight into the impact of broadly European legislation on our lives, department by department. It is not being done hastily. Again, in fairness, we should applaud all those who initiated this exercise fully and comprehensively engaging with our European partners.

This review will not offer negotiation points. However, it is clear that there is a greater understanding now that those countries not in the core need to be accommodated. It is unhelpful simply to talk of solidarity or pick and mix when the underlying fabric of the EU is under so much economic and social pressure and new structures are clearly evolving. If we have a clearer understanding of the balance of powers between member states and Brussels it becomes much easier to argue the case for EU membership itself.

The jewel in the crown has been indisputably the single market. Of course, there is more to be done. The European economy is in real difficulties. Membership of the euro demands internal devaluations that are causing immense hardship. Whether it will be possible to provide the enormous fiscal transfers to the countries that are now suffering hugely high unemployment and social problems, given the chastened state of all European economies, is frankly debatable. For all of that, it is hugely important that we in Britain are able to offer a home to foreign investors and employers who wish to access the European market. Nothing should be done that could possibly impair that.

I penultimately conclude where I began. I declare an interest as chairman of the British Ukrainian Society. Ukraine has initialled an association and free trade agreement with the EU, but in view of recent prosecutions there, the EU is requiring changes to the criminal code and the judicial system in general if progress is to be made. Russia offers very unhelpfully a customs union and there are great dangers in that. Ukraine has suffered horrifically in its history. The prospect of association, in firmly implanting democratic standards,

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could assist the country to translate into reality the high ideals of the Orange Revolution. These are very testing times for Ukraine.

Finally, I just say this, because I passionately believe it. At Laeken, the core and fundamental challenge facing the European Union was openly discussed; namely, the sense of disconnect, of the democratic deficit between European institutions and the peoples of Europe. We now see strong support for independence groupings, or at least much greater autonomy in many member countries, because of perceived overcentralised control. Also, many people believe that there has been a conveyor-belt of authority seeping away to Europe. Anti-EU sentiment has risen, and so have extreme political movements not necessarily linked. There is now a sense that the old European model cannot comprehensively accommodate 27 countries and that we in Britain need to try to recalibrate our relationship if it is at all possible to make the European Union survive and prosper. I believe that the seeds of this understanding have now been sown in recent developments in the European Union in a way which was simply not apparent a few months ago.

7.21 pm

Lord Pearson of Rannoch: My Lords, I hope your Lordships will not consider me ungracious if I point out that of the 19 previous speakers, at least 13, and perhaps more, were strong and vociferous supporters of this country joining the euro. We can all now see that it has been the disaster that some of us forecast it would be, yet we have heard not a word of apology or repentance from any of them. I hope that we will do so from the seven noble and europhile Lords who are yet to speak. In the mean time, I will just ask why we should pay heed to their wisdom about the EU’s future when they got its past so wrong.

I think we can take it that there will soon be a referendum in this country to decide whether we wish to stay in or get out of the EU. The Prime Minister apparently wants the choice to be between leaving and staying in a reformed EU, with powers being returned to Westminster from Brussels. But I trust that Monsieur Hollande, the French President, put him right on the possibility of reform last week. As I have said to your Lordships many times over recent years, to change a comma in the treaties of Rome, let alone to retrieve a power, would require unanimity among all its member states—28 of them now—and a new treaty to be ratified in all of them. I fear that that is not going to happen for any worthwhile powers.

I suggest that the referendum, when we come to it, will turn on one word: jobs. I suppose we can assume that the other great fallacy of the EU project—that it has brought peace to Europe and is essential to maintain peace in future—will not feature much. The historian Antony Beevor puts this rather well in an article entitled “Europe’s Long Shadow” in this month’s edition of Prospect, which I recommend to all noble and still europhile Lords. I quote:

“The argument that it was European unification which prevented another war on the continent was always a completely false one … Democracies do not fight each other. The key question is therefore the inverse: will a dramatic increase in the democratic

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deficit lead to unrest and even conflict as Europe ‘tears itself apart,’ in the controversial phrase of the governor of the Bank of England?”.

I would just repeat that the employment, misery, and civil unrest already sweeping Europe are entirely caused by the project of European integration and its euro. What is the eurocrats’, and our political leaders’, reaction to this obvious fact? Why, more Europe of course. I quote from Mr Beevor again: the eurodreamers,

“should perhaps remember that both in war and in peace, reinforcing failure through obstinacy has always tended to turn a crisis into a catastrophe”.

Have the Government given any thought to the contention that the disasters caused by the euro, with worse to come, can be solved only by getting rid of it? Could not all 17 finance ministers meet and declare the obvious—that the euro has failed—and go back to their national currencies at initial exchange and interest rates, to be agreed in one weekend? Of course it would be messy, but I understand that much of the work has already been done. Changing a currency costs only about 4% of GDP, which may turn out to be a small price to pay against what has already been wasted in keeping the euro going and what may lie in store. I fear that it will not happen, of course, but I thought that I would just ask, if only for the pleasure of saying “I told you so” when the tumbrils come to collect us. I look forward to the Government’s reply.

I go back to trade and jobs, on which the forthcoming referendum will turn. The Government and other europhiles will, no doubt, still intone the falsity that we must stay imprisoned in the EU because 40% of our trade and 3 million jobs depend on or are linked to the single market. I hardly dare repeat it again, but there are 4.5 million jobs in the EU that depend on their trade with us; we are their largest client, so we will be in the driving seat when we have voted to leave. The EU has, or is concluding, free trade agreements with 38 other countries, according to a government Answer to me on 19 November. It is inconceivable that we could not have trading and other arrangements at least as good as those enjoyed by Switzerland.

We have never said that we want to be in the European Economic Area like Norway, a fax democracy obeying the EU rules without taking part in their making. A number of noble Lords have made that point today, but we have never said so. I hope that we do not have to hear the Norwegian comparison again. We could have our own arrangements, and it would not matter that we no longer wasted so much time in Brussels, agreeing all the regulations that are steadily sinking the single market in the great ocean of the new markets of the future.

The US and China, and all the other countries that export to clients in the EU, do not do so either. We do not make the rules for exporting to the United States of America, but it helps to put the steering wheel on the left if you want to sell a car there. So of course we would obey the rules if exporting to the EU, as does everyone else. However, none of our exports to the EU, nor the jobs that deliver them, would be lost if we left the political construct of the treaties of Rome. The truth of this is underlined in Hansard for 14 December, at column 263, in a Written Answer to the noble Lord,

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Lord Stoddart, from the noble Lord, Lord Green of Hurstpierpoint. This confirms that there really is no difference between a free trade agreement and membership of a single market. I trust that my noble friend will quote the Answer in full when he comes to speak later.

As I have often said before, only 9%, and falling, of our GDP goes in trade with the EU anyway; 11%, and rising, goes to the rest of the world; while 80% stays right here in our domestic economy—yet Brussels diktats smother 100% of our economy. It is madness, really, when you look at it like that.

I hope that the Government are slowly beginning to understand some of these points. The noble Lord, Lord Strathclyde, the Leader of the House, told me on 21 November that,

“the noble Lord may wish to take heart that, despite tough conditions, British exports of goods have increased in the past two years to China by 72%, to India by 94% and to Russia by 109%”.—[

Offical Report

, 21/11/12; col. 46.]

If that is so, could we not make the conditions less tough by negotiating our own free trade arrangements with those countries? There is also the rest of the Commonwealth, and the whole world outside the sclerotic EU.

So, millions of new jobs indeed depend on the EU—they depend on our leaving it. Anyone who doubts this should read the briefing notes on the globalbritain.org website, where it is all set out in succinct form. I ask again whether anyone in the Foreign Office or the Treasury has actually read that store of unanswerable wisdom. What do they think of it, if they have? I look forward to the meeting offered by the noble Baroness, Lady Warsi, in Questions on 26 November, when she offered to give me,

“a briefing on the economic importance of our continued membership of the EU”.—[

Official Report

, 26/11/12; col. 10.]

I have written to her saying, “Yes please”, and I await the date with fervent anticipation.

When we have voted to leave the EU, by what method will we do so? Will we simply repeal the 1972 Act, which we were always promised, at the time of Maastricht and before, was the way of leaving the EU and retrieving our sovereignty, if that was what we wanted to do? Does that promise still stand or will the Government feel constrained to follow Article 50 of the Lisbon treaty, which sets out an expensive process that can last two years, with Brussels in control of the terms of our departure? I trust that it is still the former: we repeal the 1972 Act and then all its subsequent amendments—the Single European Act, Maastricht, Amsterdam, Nice and Lisbon—fall with it, including Article 50 of the latter. I look forward to the Government’s answer to that one.

7.31 pm

Lord Anderson of Swansea: The noble Lord gave most impressive figures for the percentage rise in our exports to China but failed to note that we export more to one Land in Germany than to the whole of China, which puts his position in some perspective. It was refreshing to hear a noble Lord who dared to speak his aim—he wants out. He lives in a world not of greys, like most of us, but of black and white.

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There are of course other noble Lords who flirt with unobtainable goals as alternatives to the European Union. For example, there is the Commonwealth, as if it could develop into a trading bloc; manifestly it could not. There is the Swiss example, but everyone now accepts that the Swiss arrangement with the European Union was a one-off, not to be repeated. Norway is mentioned as a potential example but its relationship is integration without representation—having to accept, as it invariably does, deals that are negotiated without it being part of that very negotiation. As for repatriation of powers, that is manifestly not on offer, as President Hollande made crystal clear last week.

It is perhaps unusual in a debate of this nature to have lumped together a general debate and two Bills. There is at least one disadvantage of this, in that it prevents a focused debate on an important and distinct issue such as Croatian accession. However, perhaps the link between the general debate and Croatia is that the nexus lies in the very contrast that as Croatia and, indeed, the rest of the western Balkans move towards accession, the UK Government sleepwalk in the opposite direction. Le Monde on 13 July posed the question, “Will Europe soon be without GB?”. The Financial Times, on 19 October, published an article headlined:

“Brexit: Europe loses patience with British exceptionalism”.

The Economist of 8 December had a leader entitled, “Goodbye Europe”. I concede of course that there is a rising tide of nationalist anti-Europe sentiment, particularly in the Conservative Party. Perhaps it is looking over its shoulders at the rise of UKIP. The Prime Minister himself is more sensible. He travels lightly on Europe, as indeed on most other issues, but he cannot ignore party divisions. Even the Sunday Times yesterday, one of the anti-Europe newspapers, had a headline:

“Brussels to spend £16m on PR as junk-status Croatia joins EU”.

We have been members of the club now for 40 years and, as the noble Lord, Lord Jopling, said extremely wisely from his experience, if you are members of a club you do not insult it if you wish to obtain concessions and work within the sentiment of that club. Rather than making the most of our membership and criticising from the inside where justified, as often it is, we alienate friends and allies by giving the impression of wanting to be on the sidelines and to be given a special status. Such a negative attitude surely cannot be in our national interest.

The Government, to the acclaim of the anti-European press, trumpeted their decision to opt out of the pre-Lisbon police and judicial co-operation measures—the so-called Protocol 36—without mentioning the benefits we receive, for example, from the European arrest warrant and assuming that we can opt in later if we want. However, the precedent is otherwise: in three cases, the UK tried to opt back into the Schengen opt-out but in all three cases we were refused permission on our pick-and-choose policy. As another example, over the past three years, able British graduates have clearly been deterred from putting their names forward for the administrative grade in the grand cours of the Commission. I readily concede there are other factors but we provide 12.42% of the EU population but only

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2.03% of the valid applications for the administrative grade, because of the climate that has been created and because, in part, able graduates in the UK must ask whether they will have a long-term career within the EU.

Of course, I accept that we should press strongly for change from the inside. A good example of this is the other Bill before us, the European Union (Approvals) Bill. Surely the European Agency for Fundamental Rights is largely a duplication of the human rights work of the Council of Europe. I only wish that, at the time when the agency was conceived and came into being in 2007, a British Government had robustly said, “Look, there is no need for this agency, it is part of Commission empire-building, it is going to cost a lot of money”. Indeed, the money spent on the agency is 20% of the whole of the money spent on the Council of Europe, which is the major human rights agency in this field. Like it or not, it is there, but it duplicates the work. If one looks, for example, at the themes mentioned in the European Union (Approvals) Bill—such as the Roma, racism and xenophobia—these are all key themes of the Council of Europe. We just refused, or were not strong enough, to point out that the emperor had no clothes in 2007.

The proposed accession of Croatia on 1 July next year tells one something about Croatia itself but also tells one something about the enlargement process. I personally have no doubt about the European credentials of Croatia. I remember spending one morning in Zagreb Cathedral observing how each of the stages of European cathedral-building were paralleled in the cathedral in Zagreb. The café society in Zagreb could be transplanted easily to any of the major cities of Europe. Of course there are concerns over practical issues, such as the International Criminal Court, although Croatia has now satisfied that. It has progressed well on judicial delays, as it should. On border controls, there will be a new report in March but much is being done to overcome problems. So far as migration is concerned, we have the transitional arrangements. There is no doubt about the concessions that Croatia has made, particularly in sensitive areas such as shipbuilding.

As the Minister said in opening, we have learnt many of the lessons from recent accessions such as the problem of countries having border disputes with neighbours. Slovenia drove a hard bargain over Croatia’s accession regarding Piran. On the question of backsliding, the Minister set out the new procedures, safeguard clauses and one or two other such arrangements. The big picture, of course, is that we, as Europeans, need a stable western Balkans. It is in all our interests. All those countries are relatively small. They are manageable and should be managed. I recall being in the office of George Papandreou when he was Greek Foreign Minister, pointing on a large map on the wall at the western Balkans and saying, “These are the last pieces of the jigsaw”—manageable and should be managed. So let us look forward to a time when Serbia, geographically and historically necessary for stability, and the other countries of the western Balkans play their full part in our new Europe when they are firmly anchored in the European Union.

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7.40 pm

Lord Hannay of Chiswick: My Lords, 2012 has not been a good year for the European Union and it has not been a good year either for Britain in Europe. To deny either of those two pretty evident propositions is to delude oneself and to make the search for remedies even more difficult than it already is. The members of the eurozone have remained locked in an existential crisis from which they have yet to find a safe way forward. Even if they have made some progress and have managed to avoid some of the traps into which they might have fallen—most obviously the contagion that would almost certainly have followed a Greek exit from the euro—this crisis has diverted the energy and the attention of leaders away from a whole range of other challenges, such as completing the single market, continuing to give a firm lead on climate change and facing up to the difficult foreign policy choices in places such as Syria and over Palestine, for example. At the same time, Britain has slipped into its own, quite separate, existential crisis over its membership.

The coincidence of these two existential crises is in itself a negative factor, characterised by a sharp reduction in the sense of mutual solidarity that is needed if neither is to end in disaster. Even when a piece of good news comes along—such as the award to the European Union of the Nobel Peace Prize in recognition of its major contribution to peace and prosperity in the period after the Second World War, by anchoring the former dictatorships in southern Europe and the countries of central and eastern Europe, liberated from Soviet domination, to democracy and market economies, and by stabilising the Balkans after the tragic experiences of the 1990s—that good news is rapidly discounted or, in this country, derided by those whose narrative it simply does not fit. The Prime Minister’s absence from the Nobel awards ceremony in Oslo left me feeling ashamed. How petty we have become.

What are the main choices for this country and the European Union for the period ahead? I suggest three main lines of policy. First, we should continue to be supportive of the eurozone countries as they struggle to shape a more integrated economic policy structure within which to secure the future of the euro. Their success is as much in our interest as it is in theirs. Anyone who believes that the single market could survive unscathed a break-up of the eurozone is not awfully good at risk assessment. So we should eschew any further completely unnecessary and counterproductive confrontations, such as occurred over the fiscal union treaty last December.

We should work constructively and pragmatically to develop a system of variable geometry, a concept that has worked well in the EU since the end of the 1980s. We should look at the euro, look at Schengen and look at the way in which we handle justice and home affairs legislation to encompass also now the relationship between the euro ins and outs in the fields to be covered by the new eurozone steps towards economic integration, while safeguarding the integrity of the single market for all 27—soon to be 28—member states. Both these objectives seem to me to have been advanced modestly by last week’s European Council decisions on the first steps towards a eurozone banking

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union. This means rejecting the siren voices of those advocating a two-speed, two-tier European Union, which I believe is neither negotiable, sustainable nor in Britain’s interest. It means ceasing to chase the will-o’-the-wisp of repatriation.

Secondly, we should work flexibly and in partnership with the other EU member states that favour a rigorous approach to EU spending to secure agreement on a multi-annual financial framework for the seven years ahead when the European Council next meets, in February, to discuss this. That group of countries has already achieved considerable success in shrinking the excessive spending bids of the Commission and the European Parliament. There could and should be more progress in that direction before a deal is struck. However, we need to avoid snatching defeat from the jaws of victory by pushing the EU back into relying solely on annual budgets, which would likely be higher and less sensibly distributed than the multi-annual framework. This will require the Government to be bold enough to ignore the quixotic and opportunistic urgings of the House of Commons a couple of months ago at an earlier stage in the negotiating process.

Thirdly, we urgently need to develop a positive agenda for ourselves and for the European Union that reaches beyond the traditional fixed points of Britain’s EU positions on completion of the single priorities, completion of the single market and further enlargement, valid though those priorities remain and welcome though the recent agreement on the European patent is—a clear case, by the way, of more Europe being good for Britain and good for the EU. Should we not be working with the new French Government to respond to the pressure being put on our defence budgets by the policies of austerity? Should we not give a lead, as only our two countries can in this sector, to a more effective European defence and security policy that reflects the realities of the US Administration’s pivot towards Asia and its insistence that Europe needs to do more in its own back yard? I draw some encouragement from the wording of the European Council’s conclusions, which seem to provide a perfect framework within which we could give a lead, with the French, in the year leading up to the discussion that is to take place in December 2013.

Should we not, too, be working with our fellow EU partners in the G8 and in the G20 to ensure that Europe’s shared objectives of freer and fairer world trade and of more effective policies to combat climate change are properly reflected in the outcomes of the two summit meetings to be held in 2013? If Europe cannot get its act together, we can be sure that those two gatherings will be dominated by the relationship between the US and Russia and the US and China respectively. The Europeans, ourselves included, will be sidelined and marginalised. Both the World Trade Organisation talks and the UN-led negotiations on climate change desperately need new momentum from outside their overlarge and unwieldy negotiating processes. There is an opportunity to provide that and to check the tendency to turn away from international co-operation, which could be so damaging for middle-ranking powers with global interests such as ourselves.

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None of these three lines of policy will be easy to achieve, nor will they be supported by the noisy band of Europhobic activists both outside and inside the Government’s own ranks, whose sole objective and priority is to propel the United Kingdom towards an early exit from the European Union; nor will they be achieved if the leadership of all three main parties, which continue to support Britain’s membership, do not put a lot more effort than they have in recent years into setting out, in compelling and persuasive terms, why it is in Britain’s interest to remain an active participant in EU policy formulation, and one with plenty of positive and appealing ideas. In the past four weeks there have been the first tentative signs of a response to that imperative. The speeches of the leader of the Opposition and of its own chair at the CBI conference and the speech of the Foreign Secretary in Berlin were such straws in the wind. However, much more will need to be done if the tide of Euroscepticism by default and by meretricious assertion is to be stemmed and reversed.

I shall conclude with a few words about the two European Bills to which we are being asked to give a Second Reading today. The Bill to enable the UK to ratify Croatia’s accession should be strongly supported. It represents another building block in the EU’s response to the sanguinary break-up of the former Yugoslavia, which is still work in progress with a long way to go. The aspirations of Montenegro, Macedonia, Serbia, Kosovo and Bosnia and Herzegovina must not be overlooked. Much has changed in Croatia for the better since it first applied. I was able to see some of that when I visited Zagreb in May to celebrate the 20th anniversary of Croatia’s joining the UN. The EU institutions and the people of Croatia will need to be vigilant to ensure that the ground gained in the approach to membership does not slip away after it is achieved, but there is no reason to hesitate now.

The second Bill, which enshrines the political deal to set aside the original intention of the Lisbon treaty to limit the continuing expansion of the European Commission and to ensure that the system of appointing one Commissioner for each member state remains in force, I support, too, but, I fear, only while holding my nose. The Commission is already too numerous and is unable to give all its members worthwhile jobs, a problem that will only get worse with enlargement, which I happen to support very strongly. While I accept the present provision as necessary, it is a necessary evil. This area will need to be revisited in the years ahead.

I am sure that 2013 will be another turbulent and difficult year for the EU, but it could also be the year in which a turning point is reached in those two existential crises that I have identified. I hope that all those who support an EU with Britain as a full and active member of it will join forces to make it so.

7.51 pm

Lord Judd: My Lords, I for one was very glad that my noble friend mentioned so firmly the Nobel Peace Prize at the beginning of the debate. I know that there has been controversy about this, but as one who was beginning to reach political consciousness and going

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through my formative years politically at the end of the Second World War and that post-war period, I remember it all very clearly.

Our sense of history becomes rather short. The European Coal and Steel Community was the beginning of it all. The great statesmen who were involved in this were not just interested in economic arrangements; they were seeing economic relations as the means by which one builds stability and peace in Europe—the two went absolutely hand in hand from the beginning. We should not be so reticent these days as to fail to mention and reassert the interrelationship between the economics and the politics, and how the economics are there to support the reality of a stable, peaceful Europe.

The noble Lords, Lords Maclennan and Lord Taverne, got it right when they reminded us that it would be much better to put our energies into explaining to the British people, in our schools and through informal public education, the benefits of the Community rather than just always putting across a picture of how we are defending ourselves against all sorts of pernicious and sinister forces that are trying to defeat us, which is nonsense, of course. Though we may think that we understand it or begin to understand the single market, we need to explain to the people of Britain why it is so important, not least in terms of inward investment to this country and of meeting the challenges of south-east Asia, China and Brazil.

But there is much more to the Community than just this, and noble Lords have referred to it. There is the reality of the new multinational businesses and of international crime. How are we helped in coping with the power and influence of multinational business or dealing with international crime if we try to do it all on an individual-state basis? It will not work; we have to co-operate. That is why the police are so adamant that we should be very careful about pulling out of any of the relationships that they have painstakingly built to help them to do their job effectively. Of course, this applies in the sphere of terrorism as well, as it does in that of global warming, because pollution and the consequences of global warming know no national frontiers and we are foolish if we think that we can build up effective arrangements for coping with it on a national basis alone.

We ought also perhaps to put a bit more time into talking about social legislation in Europe. We ought at least to examine whether there is some interrelationship between German economic success and the social provisions that prevail in its industrial relations and industrial law. Why do we have this knee-jerk, prejudiced reaction against it? Perhaps there is a relationship between enlightened approaches in these spheres and effective economic performance. I happen to believe that there is, but let us be open-minded about it and examine it rather than react to it.

I believe—here, I want refer to the very effective speech by the noble Lord, Lord Tugendhat, with all his experience as a Commissioner—that in the eurozone, if we have it, economic integration, as the events of the past few years have made clear, is going to be indispensable. But one cannot encourage simply economic integration; social policy has to be integrated. If there

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is not a matching social policy for the member countries of the eurozone, I see disaster and acute political instability ahead. One has to think of the consequences of what is being done economically and how one handles it in countries such as Greece, for example, or Spain.

There is one other issue that I should like to mention, because we ought to take it into account more often. One of the difficulties that we face in Britain is the remoteness of Brussels—an apparent elitism and even arrogance in the style of Brussels. This is partly a consequence of technocracy and technocratic organisation, which can too easily start generating its own momentum and leave a gigantic gap between it and the people who are closely involved in society as a whole. We need to look at that issue, because I personally believe that there is a cultural issue there which needs to be addressed.

Whether we like it or not, Britain is part of the world. It is intimately involved in and interconnected with the world; there is no way in which we can go our own way in isolation. Indeed, isolationism in political talk in our country serves the people, our children and our grandchildren no good whatever. We are part of the global international realities and our energies need to go into ensuring that we are working with the international community to do the right things for people as a whole, including the people of Britain—our own people. It is not us against the others; it is us working together with the world in getting it right for everybody, including the British people. If we do not take that approach, we shall certainly be in trouble.

The language that has surrounded the whole, great opt-out saga that we are just about to enter is the language of doing it exactly the wrong way. To think that we can make everybody suspicious within Europe, and everybody increasingly resentful of us as an irritant within Europe, and then cherry pick the bits that we want to go back into, expecting them automatically to say, “Yes, okay, we’ll have the Brits back for that”, is very naive. We have to provide and build a context in which we can be there, benefiting our own people and bringing our influence to bear in the interests of our own people, because we are working for the European and the international community as a whole.

8 pm

Lord Owen: Twenty years ago this December, the late Cyrus Vance and I were deep in the mire and tragedy of the Balkans. Therefore it is with great pleasure that I welcome Croatia into the European Union—we hope this summer. I strongly support the legislation that makes this possible. About the only positive thing one could say then was that eventually it would be settled through the aspiration to membership of the European Community, as it then was. I also hope and pray that it will not be beyond a decade before we see Bosnia-Herzegovina, Serbia, Macedonia—or FYROM—Montenegro, Kosovo and possibly Albania all coming in together. Personally, I think it would be much better if we now saw that as a concept, because each country can hugely help each other over this difficult transition, which if we are honest is not going too well in many of those countries.

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I do not need to say much about the vision of how one can restructure Europe. I totally agree with two speeches in particular—first, that of the noble Lord, Lord Howell, and then that of the former Commissioner, the noble Lord, Lord Tugendhat. I am certainly against this “shopping list” and the use of “repatriation” as a word. I am also against the belief that we can dictate. Our passage through this difficult transition will be done only if we have a positive message, if we look for solutions that suit not only us but other countries, and if we negotiate. I very much hope that the coalition, right from its very top, stops telling us what it is going to do when the next election comes and just gets on with telling us what compromises have now been reached inside the coalition. I do not look forward to the long-championed speech by the Prime Minister. Of course, he has to keep his party together and make a commitment to a referendum at some later date, as he has done. However, what is essential at the moment is to look at the negotiating strategy of the British Government and people and not just from the Conservative, Liberal Democrat or Labour Party view.

The fact is, we would never have been in the European Union, the European Community or even in the Common Market had it not been that this was wisely and widely judged as a broad-based issue of British interest and we came together. Grievous mistakes have been made. The whole eurozone was a palpably and fatally flawed combination, and for far too long those of us who said so in this country were despised and not given platforms. Equally, it has to be said, so was the ever-greater integration that went on unchallenged and often championed by Britain for nearly 10 to 15 years. That, too, was a mistake and we have to learn from those mistakes. I agree that we are not in a strong negotiating position. It is weak and the noble Lord, Lord Kerr—famous for being a Cassandra on these issues—was right to say what he did. He warned that strong forces are working towards a financial market union. My argument to him is that this is simply unacceptable and we have to make it unacceptable in a positive way.

The way ahead seems pretty clear. The European Union is a constant negotiation, hour by hour, day by day, week by week, month by month. It is not often realised in Europe what a good negotiating position Britain is in. Many people decry the Bill on referendums introduced by the coalition Government. I believed it was a sensible Bill and it has already shown itself to be one. The country can agree within the treaties to substantial integration for the eurozone if that is what these countries want. This does not challenge us in the terms of that legislation. There is no requirement for a referendum. Under the clause which talks about whether or not a power goes from this House of Parliament to the Commission, there has to be a referendum, but a power purely going to other eurozone countries does not require a referendum. This is not understood in Europe and it gives us a powerful hand. It is why it was such a tragedy that the Prime Minister embarked on his course of isolation this time last year. Thankfully, that course has been abandoned. The way that the leader of the Opposition spoke to the CBI about how many of these issues can be negotiated is also a positive feature.

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However, the idea of waiting until 2015 is quite ludicrous. It is perfectly obvious that once the German election is over, whoever wins—and there is not much difference between the parties—the German people will say to the poorer and weaker eurozone countries, “We will fund you through possibly four or five years of great difficulty”. It will be an extremely generous decision, almost a Marshall Plan-like concept, but they will not do it, or be given a mandate to do it, unless the countries given financial help are ready to adopt what many people will call and see as German financial disciplines. That is their quid pro quo. If they do it, the Government are right to encourage that process and we must let it be done by amending the treaties and without referendums. This reform will come in dribs and drabs, but at that moment we must say to them that we have demands and one is to say, “At all costs we intend to stay in the single market and we need your help to do so”. That is essential.

I simply do not accept that a community that started with six members, went through being the Common Market, the European Community and the European Union and made the mistakes that it has in the eurozone is now entitled to say to the British, “You have to be out of the single market because we wish to dictate it in a eurozone direction”. I do not think it will. There are strong legitimate reasons why we cannot join that degree of eurozone political integration, which was never envisaged during the 1975 referendum in this country. In fact, it was specifically excluded by both of the key campaigners in the yes vote, the late Lord Jenkins and the late Edward Heath. We need to get our democratic responsibilities in line. I think we will end up with a referendum. I hope and pray that it is not a straight in/out referendum on the existing EU, because I think the people of this country will vote to go out. Therefore, I want it to be a much more restructured Europe when that referendum takes place and I am confident that we can restructure it in ways which are sensible for all the members of the European Union.

One of the things which I wish to see in future is us taking positive measures, for example, taking Turkey into the European Union. We have left this issue alone for far too long, but it is now a possibility. Turkey does not want to join the eurozone. There could be a European Union that has two segments—eurozone and full integration, and single market and full co-operation. I do not ask for it to be diluted, but for qualified majority voting and a single negotiator, the essence of the success of the single market. That can be achieved for all of Europe and one that includes Turkey.

8.09 pm

Lord Dobbs: My Lords, it is a great pleasure to follow the noble Lord, Lord Owen, with many of whose remarks I agreed—which, I suspect, may be more than will be said by the noble Lord, Lord Davies of Stamford, when he follows my remarks.

This is a bit like one of those interminable European summits where everything has been said, but not everybody has said it, so we carry on. So much has happened and yet so little has changed since we last

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debated these issues. We are still where we are, with the future of Europe nailed firmly to a snowflake. We were warned just last week by Monsieur Hollande that there is no possibility of change—that repatriation of powers simply is not going to happen and commitments are for life. I am not sure what experience he has as a relationship counsellor, but I think that there may be a better way.

I spoke recently to a Foreign Minister of an eastern European country. I was trying to explain to him that many British people feel disaffected because they have never been asked directly if we were willing to give up sovereignty. I must have lost my presence of mind, because I quoted Ted Heath. He said at the time that we joined the Common Market:

“There are some in this country who fear that in going into Europe, we shall in some way sacrifice independence and sovereignty. These fears”,

he added,

“I need hardly say are completely unjustified”.

That is what I tried to explain to my eastern European colleague: that far too many people in Britain feel disengaged from the European Union and misled about it. His response was that we were clearly stupid—yes, stupid. “Of course it involves giving up sovereignty”, he said. “All you had to do was look at what was going on in Europe and you would have known”. I dare say that he was right. I suspect that he found it easier than we British would to belong to a club where all his membership fees were being paid by others. However, he was entirely wrong to say that there was simply no alternative, because to say that is to deny history, democracy and close our eyes to what is happening. The Prime Minister is of course right to seek a new settlement and to search for a new way.

When Brussels came forward with an inflation-busting budget, the Prime Minister had a duty to object. How can we turn to our sick, our disabled, our elderly, our unemployed and say, “We hear your pain, we understand your needs, but it is more important to feed the European system”? It is a system that has two Parliaments, three Presidents and hundreds of officials who earn more than our Prime Minister; whose budget is so inept and corrupt that, for the 18th year, the European Court of Auditors has refused to sanction it. Why cannot the EU clean up its act? Why do fishermen still pour fish back into the sea? Why are farmers paid for not producing food? Why are officials paid more, more and more?

The whole mess is dressed up as nothing more than the growing pains of a great ideal. Brussels is growing fat on a diet of those excuses. There is growing dissatisfaction—long-term dissatisfaction—with that great ideal. There was a time when 62% came out to vote throughout Europe in European elections. On the previous occasion, in 2009, it was down to 43%. Most people simply could not be bothered, no matter how much money Brussels poured into information campaigns about its great ideal.

I do not want to bandy statistics around, because statistics are too often used in these debates as doctors use anaesthetic, but in the past five years, there is an extraordinary fact which I find rather compelling. Almost every elected Government who have come up

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for re-election in the European Union have been thrown out—in France, Italy, Greece, Spain, Portugal, Ireland and, of course, this country. The people have demanded that Europe’s elected Governments take responsibility. That is entirely right and proper. What about Europe’s unelected Government in Brussels? Perhaps the Minister can tell us whether a single member of that Government has been fired, forced to take a pay cut or to accept any measure of responsibility for what has been going on. They keep promising change. They say, “Yes, it will be different soon”, but their solemn undertakings are a bit like a Picasso; they seem to change every time you look at them.

David Cameron is right, spectacularly right, to say that this must stop. He is right to say that there must be a referendum, that people must be put back in control of this process and that there must be a rebalancing of rights. The possibilities for a different direction brilliantly expounded by my noble friend Lord Howell of Guildford and followed up by the noble Lord, Lord Tugendhat, deserve great consideration.

However, there comes a point when every great ideal has to face the test of reality: not academic records, not aspirations, not truisms but reality. If we may, let us spend a moment reflecting on the reality that is Greece. People seem to be running away from discussing Greece, but that is the reality of part of that great ideal: where sick people need to fill deep pockets with cash to guarantee hospital treatment; where children faint in classrooms because of a lack of nourishment; where elderly women queue for food at soup kitchens in two overcoats to protect them against the cold. There is now no hope. The suicide rate was once the lowest in Europe, but has now doubled, in a country where the Orthodox Church refuses funeral rights to those who take their own lives. We are watching a country die of despair.

Ah, but the Greeks brought it on themselves did they not? Well, no, they did not—not ordinary Greeks. Those who are suffering most are not the powerful, the rich or the elite who made those decisions. You know that they will always find ways to protect themselves. Those who are suffering are the poorest, the powerless, the old, the young and the sick—those who should be given special consideration and care. That is the reality of the European Union today, and unless David Cameron and others can persuade them that there is a better, more flexible and more democratic way, then I fear that the reality could be even worse tomorrow.

8.17 pm

Lord Davies of Stamford: My Lords, this is not the first occasion when I have had the pleasure of following the noble Lord, Lord Dobbs, in a European debate. As he rightly anticipated, I did not agree with him this time any more than I have done on previous occasions, though he said his piece with his usual charm.

It has been a stimulating and worthwhile debate, but it is essential that we have another debate when the Prime Minister has made his long-awaited speech. Can I urge the Government that when that happens we have the whole day for the debate, and that the Government do not reduce the time by introducing

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Statements or debates on matters that, however fascinating they may be to some people, do not have quite the same potential historical significance as this one.

I may be a bit old-fashioned but I still have the idea that a debate should try to make progress, so I want to take advantage of being put rather low in the batting order this afternoon, not to make a prepared speech but to comment on some of the remarks that have already been made, particularly those that appear to be most memorable.

I am delighted to see the noble Lord, Lord Taverne, come in at this very moment, because the first speech that I want to refer to is his. He made a masterly analysis of the justice and home affairs issue. He demonstrated clearly and conclusively that there are no pragmatics about the Government’s attitude to this; the national interest is completely irrelevant. The Government are simply playing politics with the national interest. A bone—a very important bone, sadly—is being thrown to the Eurosceptics for purely party political reasons. This is a disgraceful state of affairs.

I also to pay tribute to my noble friend Lord Monks, who made an excellent speech about the Social Chapter, based on a unique degree of experience in these matters. I would like to add something about that issue. I am not known to be timid about attacking the modern Tory party or for being particularly indulgent to it. However, I wonder whether even the modern Tory party would seriously go about repealing the limited government measures that have gone through under the Social Chapter, to which my noble friend referred: the parental leave directive, part-time or agency workers’ directive and the four weeks’ paid leave directive. The one thing that Mr Cameron cares about is votes, and I do not think that he would get any if he legislated along those lines. No doubt the Institute of Directors, some right-wing think tanks and a lot of Eurosceptics would be delirious with pleasure; but I do not think that that would help him at the next election. So I anticipate that the Tory party is much more likely to say, “We want to pull out of the Social Chapter for ideological reasons, but we won’t actually repeal the measures that have gone through”.

If you think about it, though, that is the worst of all possible worlds. If we are going to have these measures—which are costly, of course, but essential in a humane society, to which we all want to be committed, and which are supported by all reasonable employers—it must be in our interests to ensure that they are part of the Social Chapter, and that there is no one else within the single market who can conduct their business without these kind of costs. Otherwise we would be damaging our own competitiveness within the single market, which would be a self-destructive thing to do. The Government pretend to care about the national interest, but an important aspect of the issue has not been taken into account at all.

Now I turn to the Government and to the noble Baroness, Lady Warsi. In a most excellent speech, my noble friend, Lord Liddle, quoted the Prime Minister as saying that, for him, Europe and referenda went together. I cannot think of another sentence that a Prime Minister could have pronounced which more obviously, immediately and dramatically would create

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uncertainty about our position and future in the European Union. Yet we had the noble Baroness, Lady Warsi—and, before her earlier today, the noble Lord the Leader of the House—saying, “Oh no, there’s no uncertainty at all; the Government are quite committed to our membership of the European Union and we haven’t created any uncertainty”. That is really quite a fatuous remark. The Government have gratuitously created a lot of uncertainty; as the noble Lord, Lord Pearson, said, a large number of people in this country believe that we are set on a course that will lead us to leaving the European Union in the next Parliament. Not only a lot of people in this country believe that and work on that basis, but a lot of our partners, sadly, believe that and will be working on that basis, which will mean a reduction in our bargaining power with them on many issues. Worst of all, many investors believe that, are working on that basis and therefore will not invest in this country. Whether they are British-domiciled or foreign-domiciled, they will invest somewhere else in the single market if they want their operation to be certain to continue to be in the single market and in a country that has a full weight in the decision-making process of that market so it can protect their interest.

I turn to the noble Lord, Lord Pearson of Rannoch. I do not want him to think that this is a personal attack. In fact, I have a high personal regard for him; I admire his courage and persistence in continuing to voice views that I think are completely misconceived but he does so very lucidly. Since he has set out so lucidly today what is the standard narrative of Eurosceptics, both in UKIP and the Tory party, I hope that he will not mind if I make him the object of my final remarks.

The problem that all Eurosceptics, whether UKIP or Tory, have in this country is that you just cannot make a credible economic case for leaving the European Union. There is no way that anyone can argue—I have not seen anyone even pretend to do so—that the mere fact of leaving the European Union will add one job to our national economy or one basis point to our GDP. Of course it will not; the argument is entirely the other way. The argument is about how many jobs it will destroy and how many basis points, or, indeed, percentage points of GDP, it will remove and over how long. That is how the argument is conducted—on whether it is hundreds of thousands of jobs we will lose, or millions. Generally, people recognise that if we were left with no access to the single market altogether, it would be more in the millions than in the hundreds of thousands.

Faced with that fact, what do you do if you are a Eurosceptic? I am afraid that you go in for some pretty evasive and disingenuous arguments, which we hear the whole time, and I am sorry to have to say to the noble Lord that we heard them from him this evening. We hear people say in the same speech, “We can negotiate continuing access to the single market”, and, almost in the same breath or sentence, that what is all wrong with this thing is the regulatory burden that we face, which is why we must leave the European Union. Yet if you continue to have access to the single market you continue to have the same regulatory framework, to which you are committed. That is the case with Switzerland and Norway, and it would be the case

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under all circumstances if we negotiated continuing access to the single market.

The difference, and it is a very important one, is that you are no longer part of the decision-making structure. You have no influence on the evolution of that regulatory regime, on the new regulations or on changes to them. You have no opportunity to propose a reduction of regulations, if you think that is the right thing to do. You are out of the dialogue—

Lord Pearson of Rannoch: Would the noble Lord give way?

Lord Davies of Stamford: I do not want to speak for too long. I am afraid I cannot give way because we have had imposed on us an unofficial time limitation, because the Government have preferred to do other things.

Lord Pearson of Rannoch: My Lords—

Lord Davies of Stamford: I am afraid I must insist. I am very sorry. I would love to give way to the noble Lord. I believe in debate in that sense, but we cannot do it consistent with having a time limit imposed on us.

Lord Wallace of Saltaire: My Lords, if I may read from the Companion:

“A member of the House who is speaking may be interrupted with a brief question for clarification … Lengthy or frequent interventions should not be made, even with the consent of the member speaking”.

That suggests that we should allow the noble Lord to finish his speech.

Lord Davies of Stamford: I am grateful. The noble Lord, Lord Pearson, made another classic error in his speech; it was about our bargaining power. He said that a certain amount of our trade—50%, or whatever it is—is with the rest of the EU but that nevertheless we buy more from them than they buy from us, and that therefore we have greater bargaining power. I am afraid that that is a logical fallacy. Bargaining power depends not upon the size of the stake but upon the importance to each party respectively of doing the deal. I hope that the noble Lord recognises this because he would be in terrible trouble in any negotiation he is involved in if he does not.

In other words, what is important is how important the particular deal under negotiation is in relation to the total of a party’s interest. As the noble Lord recognises, we have 50% of our trade with the rest of the EU. That is pretty much a life-or-death stake to have but from the point of view of the rest of the EU, which has 17% of its trade with the United Kingdom, it is much less of a life-or-death stake—so we have much less bargaining power, as they have much less need to do a deal than we have. On that basis, one can be a great deal less sanguine about any such negotiation that might take place than Eurosceptics are inclined to reassure the British public that we might be.

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Lord Pearson of Rannoch: Before the noble Lord sits down, will he therefore tell us how every other country in the world manages to trade perfectly satisfactorily with the single market without having its ridiculous rules?

Lord Davies of Stamford: We have much greater penetration into the single market than other industrialised countries such as the United States or Japan, and we have that by virtue of being part of the single market. A great many businesses have been set up in this country, both by British-domiciled investors and by foreign investors—including, importantly, by Japanese and American investors—in order to have access to the single market. That is where we have gained enormously; we are part of the market itself. That is a priceless advantage and I think that the noble Lord implicitly accepted it when earlier on, slightly in contradiction to the question he has just asked me, he recognised that we must negotiate some continuing access to the single market or we shall face the most appalling economic losses.

8.28 pm

Lord Willoughby de Broke: My Lords, I prepared a very interesting and rather long speech for today’s debate but I decided to tear it up while reading the Times this morning on the train here. In it was a reference to an article in Saturday’s Timesthat was written by Matthew Parris, and which I was pointed to, about,

“the spittle-flecked obsessive reactionaries of UKIP”,

so I looked that article up. I got it out of the Library and I have it here. Its title is:

“Stamp on the grasshoppers of the Rabid Right”,

and is subtitled,

“These spittle-flecked, obsessive reactionaries belong in UKIP. Don’t let them shelter under the Conservative fern”.

I thought that it was the New Zealanders who had the fern and that the Conservatives had an oak tree, but let that rest.

The detail of this article gives offence to me and many of my friends. Matthew Parris says, talking about Conservative MPs, that,

“the local MP has spent a career repelling from party membership anyone under 70 who isn’t a spittle-flecked, obsessively anti-European, immigrant-hating social and cultural reactionary”.

That really is not terribly helpful, nor is the Prime Minister’s refusal to retract his insult that UKIP is largely composed of fruitcakes, cranks and closet racists.

In the Times today I saw the results of a ComRes poll over the weekend conducted for the Independent on Sunday and the Sunday Mirror. It showed that 14% of voters would vote for UKIP and only 9% for the Liberal Democrats; 28% would vote for the Conservatives, by the way, so we are catching them up.

A lot of Conservative MPs want to leave the EU, many more want to renegotiate their positions within the EU and at least three members of the current Cabinet have said they would be happy to leave the EU. All opinion polls in the past two years have found that about 50% of the people in this country would be

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happy to leave the EU. I know that polls vary and will change from month to month and year to year but, nonetheless, they are definitely straws in the wind.

Are all these people who are polled, the MPs and the members of the Cabinet, all spittle-flecked, immigrant-hating, fruitcakes and racists? Of course they are not. Of course we are not. We want to get our country back. I do not think that is a crime and I do not think we should be treated in this extraordinary way by the leader of the Conservative Party or by a time-worn columnist on the Times.

I do not agree with anything that the Europhiles have said. They have been wrong all along and I think where they are trying to lead us now is very dangerous but I do not insult them—I do not have to, because I just look at the facts. I was grateful to the noble Lord, Lord Dobbs, for mentioning Greece, which has been, as he said, singularly absent in our debates this evening. The Europhiles have skated over the results of what the euro has caused in Europe.

In Greece there is now a bitter hatred of the troika and the misery, poverty and unemployment that it has caused; the noble Lord, Lord Dobbs, is absolutely right about that. The programme of forced austerity has brought misery to Greece, as the noble Lord said very clearly. The German Chancellor is routinely caricatured cruelly in full Nazi regalia. In Greece, unemployment is 26%; youth unemployment is a shocking 55%. The Greeks are run by the troika now; they have no fiscal independence at all.

The noble Lord, Lord Owen—he is not in his place to answer the question I want to ask him—said that the Germans will pay for the Greeks and for the “Club Med” in future as long as they obey the German-imposed rules. What happens if they cannot hack it, or if they are unable or unwilling to do so? What happens if the disaster scenario occurs that the noble Lord, Lord Dobbs, mentioned at the end of his speech?

We have a bit of an answer from, I think, someone in the German Ministry of Finance—it may have been Herr Schäuble—who promised that they will have,

“more intense, compulsory employment of external technical assistance”.

What does that mean? Does it mean the European Gendarmerie Force? No, I think it just means that when the EU says “Jump!”, the Greeks can only say, “How high?”. I think that that is what is called pooling sovereignty in the EU.

The same thing is happening in Spain, of course. The EU’s vanity political project, the euro, is causing unemployment, unrest, riots and even talk of secession in Catalonia and Andalucía. Your Lordships want to know what the unemployment rate in Spain is. I will tell you: it is 26%, according to Eurostat. Youth unemployment is 49%. In Italy, Beppe Grillo’s out-of-euro party is making enormous inroads. The much derided Berlusconi, when he announced his possible candidacy—he was probably teasing the Italians a little—got it right when he said,

“I can’t allow my country to plunge into an endless recessionary spiral”.

I would have thought that was a pretty good electoral programme on which to run in Italy.

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In France, we could soon hear the time-honoured cry: “Aux barricades!” when President Hollande comes up against what he believes is a world without bond markets, globalisation and the internet. When that collides with reality, where is he going to be then? France’s exports are already crashing. Unemployment is rising. The reality is that the EU is impaled on a Morton’s fork of its own making. On the one hand, there is permanent stagnation while the euro staggers along on the German support system; on the other, there is a deep economic depression as the eurozone breaks up. Those are the only two alternatives in front of us at the moment.

The ice is cracking under the European Union, however unpalatable that may be to the Europhiles in and outside this House. We do not know who is going to make it to the shore and who is going to fall in. However, what has happened is not the Eurosceptics’ fault. It is entirely down to the arrogance, conceit and distaste for democracy of the EU elite. As my noble friend Lord Pearson has asked, when are they going to apologise?

8.37 pm

Lord Framlingham: My Lords, I am pleased to follow the noble Lord. I certainly share many of the concerns that he has voiced.

I was anxious to take part in this debate because I am becoming increasingly concerned, both about the fabric of our society and our ability as a nation to govern ourselves. One of the main responsibilities of any generation is to protect and preserve what is good in its society and hand it on to the next generation. We, my generation, are failing to do this on a massive scale. One of the principal reasons for this is that, as a country, we are no longer in control of our own affairs or our own destiny. While the European Union is not solely responsible for this, it is certainly playing a major role in all that is happening, and it is time to take stock.

The European experiment—for that is what it has been, although it has lasted quite a long time now—in its original form was never going to work. So many different nations with their different histories, cultures, ambitions and climates were never going to happily and peacefully co-exist in one, all-encompassing framework. So it has proved. The EEC became the EC and then the EU, changing and modifying its framework as the experiment progressed. More countries were added, now an unwieldy 27 with more to come. Problems and tensions of many kinds, not least financial, have grown. Sticking plaster has been put on sticking plaster. Grudging agreements have alternated with threats and, occasionally, genuine use of vetoes. No one is being clear or honest about the ultimate goal. All we are sure of as a nation is that we do not want to lose any more power to Brussels and we do not want to be further embroiled in the experiment, wherever it may be leading. That is right but it is essentially negative, and we are constantly being accused of being negative.

The time has come fundamentally to change our attitude and produce a clear and positive plan for the kind of Europe that we would like to see, together with our place in it. The whole purpose of experiments

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is to learn—we have learnt from this one—to draw sensible conclusions and plan future programmes. A blueprint that suits our country is not purely selfish, although of course our first duty is to our own country and its people. A sensible working framework would benefit the whole of Europe. Perhaps I may say how much I agreed with the wise, yet exciting, speech of the noble Lord, Lord Howell of Guildford. I am glad he is not in his place now in case I embarrass him. I risk embarrassing him further when he reads this. Anyone seeking inspiration about our role in the world need refer only to the speech of the noble Lord, Lord Howell, in the foreign affairs debate on 6 September. It was comprehensive, all-encompassing and very, very positive.

In European terms, we are in a mess; a mess predicted by so many people from the beginning. We are faced either with grudgingly giving way bit by bit more and more control over our own affairs or eventually an acrimonious split with unforeseen consequences leading to hasty reorganisations fraught with danger. It is a pressure cooker with a temperature constantly rising and we as a country are leaving ourselves entirely dependent on events.

Let us discard some labels. Let us discard “in” or “out” and “Eurosceptic” or “Europhile”. This is really no time for allowing entrenched views to stifle open debate. We should start as a matter of the greatest urgency a brand new debate on a new framework for Europe and our place in it. When finished and finalised it can be put to the British people if need be in a referendum. That eventually will be essential. The longer we leave it, the more difficult and dangerous the situation becomes. On this issue we must take the lead. I believe there is no time to lose.

8.42 pm

Lord Lea of Crondall: My Lords, we read that the Prime Minister is thinking about making a speech about Europe but cannot decide what to say, so I have written him a draft and I can give the House advance hearing of it today. It is as follows.

“I was eight years old when Harold Wilson called the referendum in 1975 and advocated a yes vote. I was able to knock on doors to urge a yes vote on the basis of the 1971 White Paper visualising ever closer union. That, of course, was under Ted Heath’s Government. In doing this in 1975, I gave my support to our recently elected and most distinguished leader, Margaret Thatcher, following in the trailblazing footsteps of Ted Heath.

“Friends, we are often accused of being dishonest about the European project, so let me be brutally frank or else we will all have a nervous breakdown”—I think that the absence of Members on the Conservative Benches this evening probably suggests that most of them have had a nervous breakdown already. “The noble Baroness, Lady Thatcher, never claimed that the British people were misled in 1975”. Well, she could not, having been leader of the yes campaign for the Conservative Party in 1975 on the basis of that White Paper and the Act of 1973.

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“I say all that because nothing is gained”—and this is David Cameron speaking, just to remind people who have just walked in—“by playing around with the word ‘sovereignty’. It is bandied around as if it has a unique and unambiguous meaning. We are members of NATO, are we not?” Can I ask UKIP Members whether they are happy that we are members of NATO?

Lord Willoughby de Broke: Yes, I can answer that—

Lord Lea of Crondall: “Yes” is a sufficient answer.

Lord Willoughby de Broke: Because NATO does not make our laws.

Lord Lea of Crondall: NATO has majority voting in its own way. What about the UN? Is there any comment from UKIP about that?

Lord Pearson of Rannoch: My Lords—

Lord Lea of Crondall: No, obviously not.

Lord Pearson of Rannoch: Yes, my Lords.

Lord Lea of Crondall: They have no comment because their case is demolished.

Lord Pearson of Rannoch: I am doing my best.

Lord Lea of Crondall: It is healthy to—

Lord Pearson of Rannoch: Would the noble Lord please not go on asking questions to which he does not want answers because they are too uncomfortable for him? We are happy to be in the United Nations because we could withdraw—

Lord Wallace of Saltaire: This is a Second Reading debate. Given the lateness of the hour, we should really have one speech after the other rather than general exchanges. Perhaps the noble Lord who is speaking could bear that in mind.

Lord Lea of Crondall: Am I going to get extra time for this?

Lord Stoddart of Swindon: I merely wish to correct the noble Lord. He pointed to me when he referred to UKIP. I am not a member of UKIP; I am Independent Labour.

Lord Lea of Crondall: I do not know what the disagreement is between UKIP and the noble Lord, Lord Stoddart. Perhaps it is simply that the noble Lord, Lord Stoddart, having been a member of the Labour Party, has misgivings about joining people of that ilk. However, I am talking about policy, and perhaps the noble Lord, Lord Stoddart, could answer separately. I forgive him if he thinks—

A noble Lord:Get on with it.