APPENDIX 4: NOTE OF THE SUB-COMMITTEE'S
MEETING WITH HERMAN VAN ROMPUY, PRESIDENT OF THE EUROPEAN COUNCIL,
2 OCTOBER 2012
Lord Harrison thanked President Van Rompuy for agreeing
to meet with the Sub-Committee. He asked him to provide an overview
of the current challenges facing the EU, and of the extent of
his role in addressing them.
President Van Rompuy replied that in the two-and-a-half
years since he took on the post, there had been one over-riding
task—to address the economic and financial crisis. Agreement
had been found on new mechanisms, new rules and a new treaty.
Steps that would have been unthinkable three years ago had been
undertaken because there was no other option. He pointed out that
there were 17 "lively democracies" in the eurozone,
and 27 in the whole Union, so these steps had taken time to agree.
He conceded that sometimes the response had been too little, too
late. The need for unanimity in the European Council meant that
much preparatory work was required to ensure that the Conclusions
of each meeting were acceptable to everybody.
The President said that the EU was in a better place
than a few months ago. No-one was now speaking about imminent
eurozone collapse. Although the problems had not disappeared,
things were "on the right track" but the EU might ultimately
need to give Greece more time. The new Greek government was doing
a good job in difficult circumstances. The programme of reforms
already agreed to were a massive adjustment in its primary balance.
He acknowledged that this was deflationary but said that, in the
case of Greece, there was no other option. And without the bailout
loan and debt write-offs, it would have faced a far more drastic
situation. He asserted that Greek competitiveness was improving.
He said that the problems in Cyprus and Spain were also important
but they did not threaten the existence of the eurozone.
The President added that the other big challenge
was to deepen EMU. His interim report, drafted in cooperation
with the Presidents of the Commission, ECB and Eurogroup, would
be ready in time for the October Council. Draft Conclusions would
be sent to Member States that evening. He stressed that it was
very much an interim report intended to clarify concepts and test
the degree of support for various ideas. There would be most detail
on the Single Supervisory Mechanism. He said that "Banking
Union", as it was called by some, had two other components.
On deposit guarantee schemes, he was looking for progress on the
existing Commission proposal. He said that mandatory lending between
Member States would be "dealt with separately", in the
language of the draft Conclusions. There was currently no agreement
on mandatory lending so it had to be postponed. On banking resolution,
there would be a single resolution authority common for the eurozone,
but these steps were for later. He conceded that there was no
consensus on many elements, in particular in relation to debt
mutualisation.
Another chapter in the interim report was on fiscal
union. President Van Rompuy said that it would already be an achievement
if agreement could be reached on the "two pack" currently
before the EP. Going further than that on the "discipline"
side would mean touching on core issues of national sovereignty.
On the "solidarity" side, a new—and embryonic—idea
of fiscal capacity for the eurozone in the form of a supplementary
budget was being explored, based on the idea that monetary union
requires fiscal capacity, but there were different ideas about
the objectives of such a budget, for instance to deal with asymmetric
shocks or to help countries undertake structural reforms, as well
as providing possible incentives. These ideas were at an early
stage.
Regarding economic union, the Country-Specific Recommendations
and the Macro-economic Imbalances Procedure were already in place.
There was now a new idea of developing individual "contracts"
for Member States on reforms and their implementation, with the
Member State, Commission and Council working together.
Overall the EU had already done a lot. Going further
was a problem for many Member States, not only the UK. Therefore,
at this stage, the focus would be on a single supervisory mechanism
and to start to explore new ideas for fiscal capacity and contracts
with Member States.
In November there would also be a separate European
Council meeting on the Multiannual Financial Framework (MFF).
This would begin on Thursday 22 November and go on until the Sunday
if necessary. The MFF was an important issue, but was only 1%
of EU GDP; in fact the current arguments concerned what amounted
to less than 0.1% of EU GDP. The President did not underestimate
the political ramifications but said that Member States "must
stay cool and rational". Agreement must be found—if
the European Council could not agree on this, on what could it
agree? And it would be even more difficult to find agreement later.
Lord Harrison asked about the Liikanen report and
the timetable for Banking Union.
President Van Rompuy replied that he hadn't yet seen
the Liikanen report. On the timetable, there was a link between
the Single Supervisory Mechanism and recapitalisation of banks.
It had been agreed to proceed with recapitalisation once an effective
supervisory mechanism was in place. He stressed that a decision
must be made as soon as possible: he hoped to get much agreed
in the Spring. He intended to ask the European Council to approve
"broad outlines" so that the Council (ECOFIN) and the
EP could seek agreement before the end of year, with the details
following thereafter.
Lord Harrison agreed that this seemed a more realistic
timetable.
Lord Jordan asked what needed to be done to ensure
that the ECB was democratically accountable for its new powers.
The President said that this was part of the solution
which had to be found. The ECB was much more accountable to the
European Parliament than people thought, appearing before its
ECON Committee at least four times a year, and at least once a
year before the plenary. Therefore this was more than simply a
dialogue; if the ECB took on supervisory powers, then he foresaw
an "evolution" of the European Parliament's role.
Lord Kerr asked about the link between the ECB and
the EBA, and President Van Rompuy's statement that the division
of responsibility would be clear and workable. He asked whether
the President agreed with the Commission's proposal to change
the EBA's voting rules.
President Van Rompuy said that what he personally
thought was not important—his role was to find agreement.
He stressed that the EBA would keep its current competencies—the
single rulebook, common standards and so on, and would ensure
the integrity of the single market. But, when there was a single
supervisor for the eurozone 17 or more, the EBA's voting rules
would have to be adapted so that those outside the mechanism did
not feel discriminated against. That was a political problem that
needed a solution. The Commission's proposal was not the end of
the road.
Baroness Prosser said that not everyone was happy
with the idea of being supervised and regulated, and that not
all banks were the same. She asked whether the supervisory mechanism
should cover all institutions.
President Van Rompuy stressed the need to phase in
supervision, starting with the largest and most systemically important
banks, to ensure that a supervisory infrastructure could be developed.
After bilateral meetings with Member States and the European Parliament,
he believed that this was something on which there was widespread
support, but that it was necessary to find agreement on the pacing
of this: "the who and the when". But the principle of
eventually supervising all institutions starting with the largest
and most systemically important, was reasonable to most Member
States.
Lord Marlesford questioned whether it was right to
refer to Spain as a minor problem when the markets said otherwise.
President Van Rompuy stressed that Spain was not
a minor problem, but rather not an existential problem. At present
the interest rate spread was below 6%. As a former economist,
he questioned why an interest rate of 6% should be unsustainable
for a limited period. He stressed that the interest rate of average
debt in Spain was lower, and some perspective was necessary. If
spreads went up significantly, then there was a possibility of
asking for help, as indicated by the June decision. Not every
Member State was keen for this to happen, not least because there
was a need to ask the Bundestag and other national parliaments,
following which the EFSF could proceed to intervene in the primary
market, and the ECB in the secondary market, essentially working
as a lender of last resort.
Lord Flight asked about deposit guarantee schemes
and how President Van Rompuy's call for a deposit insurance scheme
related to the existing Deposit Guarantee Schemes Directive. He
said that the US had found that deposit guarantee schemes were
crucial to stopping retail bank runs.
The President said that this was a logical step once
banking union was in place, but it was "a case of first things
first". Deposit insurance would contain an element of debt
mutualisation, which was very difficult at this stage. It was
not possible to solve all the problems at the same time. A single
supervisory mechanism was the first priority.
Lord Kerr asked whether he was content to see the
implementation of the 2010 Deposit Guarantee Schemes Directive
and the Recovery and Resolution Directive for now, and whether
the single supervisory mechanism was the priority for the October
Council meeting.
President Van Rompuy agreed with both points.
Lord Hamilton asked what the impact would be on the
City of London of the UK not participating in banking union.
President Van Rompuy said that we all had to make
choices and draw our own conclusions from that choice. If the
UK chose not to be a part of banking union there would be consequences
for London. Nevertheless the EBA would be there and there was
the guarantee of the single financial market, which was in itself
the biggest guarantee.
Lord Hamilton asked if there would in effect a eurozone
voting bloc within the EBA.
President Van Rompuy conceded that this was difficult.
It was necessary to find ways to ensure the UK was not in an isolated
position with decisions being taken by "continentals".
He said he understood that point and that it needed to be looked
at. He believed that there was openness in the rest of the EU
to addressing this issue.
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