15:52 - The House divided: - Ayes: 267 / Noes: 46 - Question accordingly agreed to.
The Financial Secretary to the Treasury (Mr Mark Hoban)
I congratulate my hon. Friend the Member for Rochester and Strood (Mark Reckless) on securing the debate. I will start by setting out our view, which is that responsibility for sorting out the problems of the euro area ultimately rests with euro area Governments. We are not members of the euro area, so it is not our responsibility to deal with all its problems. However, no one should be under any misapprehension about the importance of the euro area to the UK economy.
A strong euro area means a growing market for our goods and services. A weak euro area puts at risk jobs and businesses in our constituencies, as my hon. Friends the Members for Orpington (Joseph Johnson) and for Bristol West (Stephen Williams) noted in their contributions. More than 40% of UK exports are to the euro area, and we know, as has been repeated ad nauseam, that we export more goods and services to Ireland than we send to Brazil, Russia, India and China combined. We have a clear interest in ensuring that the problems in the euro area are resolved and that the right mechanisms are in place to do so, but it is not our responsibility to sort them out and it is right, as the amendment makes clear, for us to find a permanent solution that does not require us to contribute to this.
Mr Hoban
If my right hon. Friend will be patient with me, I want to respond to some of the important points raised by a number of Members who have contributed to the debate. If I have time at the end, I will take interventions.
My hon. Friend the Member for Rochester and Strood said that taxpayers had contributed £12.5 billion to bail out euro area states, but that is simply not the case. Let me explain why. The European financial stability mechanism is funded by the European Commission borrowing from capital markets, and it is only in the event that a beneficiary member state defaults that the EU budget, and so the UK, will be called upon to contribute. The UK does not fund the EFSM, which is a contingent liability. Not a single pound of taxpayers’ money has gone into the EFSM. On Ireland, as my hon. Friend the Member for Devizes (Claire Perry) has said, we have made a loan, not a gift or a grant, and we expect to get our money back. Not a penny of the money that we have saved through spending cuts has been used to make that loan.
Let me go back to the events of a year ago. Europe faced a crisis, with concerns about the stability of Greece, and in the May ECOFIN meeting the EFSM and the EFSF were created. They were created at the height of the Greek crisis, in exceptionally turbulent conditions, before the Government took office. Markets were increasingly questioning the EU’s response to the situation. Indeed, there were fears about the stability of the entire euro area and the risk of contagion was real and dangerous. European Finance Ministers decided to create a broader package to restore confidence and stability. ECOFIN agreed to establish the EFSM and at the same time euro area Finance Ministers agreed to create the much bigger EFSF, which is backed entirely by euro area countries and does not create any liability for the UK.
It is worth reminding hon. Members that, although the Greek crisis triggered the creation of the new mechanism, the EFSM was not used by Greece. The Greek rescue package was financed by the IMF and a series of bilateral loans between individual euro area member states and the Greek Government.
The EFSM was agreed at ECOFIN by qualified majority voting and before this Government took office, and Cabinet Office protocol was followed throughout. At the time, in a conversation with his predecessor, the current Chancellor made his views on the EFSM clear and cautioned against committing the UK to proposals that would have a lasting effect on the UK’s public finances. Members need not take my words for it; the right hon. Member for Edinburgh South West (Mr Darling) gave his recollection of the conversation to the House on 15 December 2010:
“I discussed with the Chancellor what we should do about the financial stability mechanism. He had his reservations and stated very clearly that he was against deploying it”.—[Official Report, 15 December 2010; Vol. 520, c. 954.]
That exactly matches the account given by my right hon. Friend the Chancellor.
Mr Hoban
No. As I said earlier, I want to make some progress on the matter.
My right hon. Friend was also clear that, in the days prior to the formation of the coalition, the right hon. Member for Edinburgh South West was still the Chancellor of the Exchequer, representing the UK in a dynamic negotiating environment, and it was for him to reach that decision.
The hon. Member for Nottingham East (Chris Leslie) quoted an extract from an explanatory memorandum, and yes there was consensus between the parties about the process, but not about the outcome—as the former Chancellor of the Exchequer made clear in his statement to the House in December. It was a matter for the previous Chancellor to decide, and he was the man occupying the office at the time.
Some of my hon. Friends have today articulated concerns about the use of article 122. The EFSM was created following agreement by a qualified majority of member states at the ECOFIN meeting on 9 May 2010, and the terms of the mechanism are set out in an EU Council regulation. It is based on article 122 and states:
“Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional circumstances beyond its control, the Council, acting by a qualified majority on a proposal from the Commission, may grant, under certain conditions, Community financial assistance to the Member State concerned.”
The Council decided that in those circumstances those criteria applied.
Several hon. Members have raised the issue of article 125 of the treaty, the so-called “no bail-out” clause, but article 125 does not preclude member states from providing loans to one another, and, as evidence of that, the EU’s balance of payments facility has already provided medium-term financial assistance to a number of member states.
Over the past year, we have had to deal with the legacy that we inherited from the previous Government and the previous Chancellor of the Exchequer, but we have made sure that the permanent arrangements to sort out the euro area are the ultimate responsibility of euro area member states.
My right hon. Friend the Prime Minister made that his goal at last December’s European Council, where he secured two significant victories for the UK. First, he made sure that article 122 could not be used for euro area bail-outs in the future. Secondly, he ensured that the UK would not have to contribute to the European stabilisation mechanism, the permanent mechanism that will replace the EFSM and the EFSF. As the Prime Minister said, we have a good “belt and braces” approach—a no need, no use approach.
Mr Hoban
If my hon. Friend allows me to continue for a few minutes longer, I may be able to take some interventions.
We ensured that the recitals—the preamble—to the decision by Heads of State and of Government at the March European Council stated that article 122
“will no longer be needed”
and “should not be used” to ensure financial stability for the whole euro area once the permanent mechanism is in place.
In shaping the debate about the ESM, we had clear priorities. First, we had to ensure that there was no transfer of powers from the UK to the EU. We would never have accepted such a transfer, so the treaty change applies only to euro area member states, and only euro area member countries have to contribute to the rescue of other euro area countries. There is no transfer of power, competence or, indeed, funds from the UK to Brussels under that treaty change, but that judgment will not be for Ministers alone.
Mr Hoban
I have two minutes left to conclude my remarks and to respond to the very detailed questions that hon. Members on both sides have raised, so I should like to continue to do that.
The treaty change was agreed at the Council in March and will have to be ratified according to the process set out in the European Union Bill. Ministers will need to make a statement explaining why the treaty change does not transfer power or competence from the UK to Brussels, and Parliament will need to pass primary legislation before the UK can ratify that change.
Mr Hoban
My hon. Friend and his Committee have a particular view on the legality of the arrangements, but as I have said there was a clear view that article 122 could be used in those circumstances.
Although we have had to live with the decisions of the past and the EFSM, we have fought to free our nation from the constraints of those decisions in the future. We will not have to contribute towards a European rescue of another euro area member state once the permanent ESM comes into force.
I believe that the amendment tabled by my hon. Friend the Member for Daventry (Chris Heaton-Harris) captures the essence of our position. As a consequence of the action taken by the previous Government, we are part of the EFSM. This Government have had to ensure that we are outside the scope of the permanent mechanism. My right hon. Friend the Prime Minister has already delivered that commitment at the European Council in December. I hope that my hon. Friends recognise that the action we have taken has freed the UK from the obligation to take part in future bail-outs of euro area member states.