European Council

Thursday 8th December 2011 Westminster Hall

Motion made, and Question proposed, That the sitting be now adjourned.—(Mr Dunne.)

14:30

[Mr Bernard Jenkin (Harwich and North Essex) (Con)]

It is an unexpected pleasure to be opening this debate, and also that it is taking place at all. We should, of course, have a full-day’s debate in the main Chamber in advance of a summit of the importance of the European Council summit that is about to take place. Under the previous arrangements there would have been such a debate, but the Government somehow do not seem able to provide for one under the new arrangements. Nevertheless, it is a great honour for me to have been given the responsibility to set out what many of us feel should be addressed at the forthcoming summit.

There is no doubt that this is a momentous moment in the history of Europe, and you do not need to take my word for it, Mr Turner. Speaking in Toulon last Thursday, President Sarkozy of France said Europe must be “refounded”, and he is talking today about the crucial historic moment of this summit. I think he is upping the ante a bit, perhaps unnecessarily, because no treaty will be signed at the summit. The participants will merely be agreeing issues in principle, and there will be long and arduous negotiations about the treaty text before anything is signed. In her speech to the Bundestag last Friday, Chancellor Merkel of Germany said:

“We have started a new phase of European integration”,

so the idea that nothing much of importance is happening in Brussels except trying to save the euro is a distortion.

The leaders of France and Germany came together on Monday to hammer out their vision, not just of how to save the euro but of the future of Europe. There will be only one real issue on the agenda in Brussels tomorrow: the final desperate act of European integration—fiscal union. In other words, the issue will be the formation of economic government of the 17. According to President Sarkozy and Chancellor Merkel in their letter to Herman Van Rompuy, this will

“need a renewed contract between the Euro area Member States”.

The coalition agreement never envisaged confronting a major change to the EU treaties in this Parliament. The EU was meant to be off the agenda and, indeed, the leadership of the Conservative party deliberately downplayed the issue of Europe, both before the election and in the first part of this Parliament. The Government have, therefore, found themselves ill-prepared for this crisis.

Official rhetoric on the EU might have moved on a bit from the days of John Major, but the substance of policy remains remarkably similar. My right hon. Friend the Prime Minister now says that there should have been a referendum on the Maastricht treaty, but he has yet to criticise its substance. From today’s perspective, does anyone seriously doubt that John Major should have vetoed monetary union? Maastricht also established the principle of the two-speed EU, with its dangerously comforting opt-outs. Subsequent treaties, not least the Lisbon one, have proved that two-speed, multi-speed, or whatever you want to call it, means only one federalist direction for the EU, with the UK having less and less influence, since opportunities for veto have been given away more and more. As a result, at this summit the UK is presented with the unenviable dilemmas of the forthcoming decisions. Once again, the UK is reacting to an agenda set by other member states, and Ministers are left managing what can be described only as a retreat. To cite another of the Prime Minister’s phrases,

“we cannot go on like this.”

The Prime Minister has made it clear that

“the bottom line for us is always what is in the interest of the UK”,

and I agree, but what is the bottom line? In his article in The Times yesterday, the Prime Minister said that he was still committed to forging

“a new kind of Europe…a more competitive, dynamic and outward-looking Europe…a Europe that has the flexibility of a network, not the rigidity of a bloc. A Europe that looks beyond itself with its eyes to the horizon, and recognises that it must change fundamentally or fall behind. A Europe that cherishes its national identities as a source of strength.”

Well, amen to that. I do not think that a single member of the Conservative party would object to that, or indeed that a single person in the country could. But we have heard this before. It is an echo of the previous Prime Minister’s plea for a “global Europe”. Tony Blair spoke of a Europe that is “democratic”—one thing that the eurozone will not be—and John Major spoke of a Europe that recognises that

“the nation state is here to stay”.

These British visions of a different kind of EU have been proffered and offered to various EU summits down the decades, but they are not on the agenda of our fellow member states, or of the EU Commission and the other EU institutions. They never have been, and other member states are not spontaneously going to come round to our way of thinking. They are not interested in discussing those visions.

The Government say that they might veto the treaty changes discussed at the summit, unless the treaty has

“the right safeguards for Britain…around things like the importance of the single market and financial services”.

It is very important that the Prime Minister has put that on the record, but it gives the lie to the idea that it is unthinkable for the UK to refuse to accept the EU’s plans for fiscal union without making demands of our own. We are constantly being harangued by people, who say that if we are asking questions about the summit we must somehow want to wreck it, but the Prime Minister himself has offered the prospect of a veto, so they need to make that accusation to him as well, and of course that would be ridiculous. I commend the Prime Minister for making it clear that he will stick up for British interests.

There is no need to delay ratifying treaty changes unless other member states object to the reasonable demands that the UK Government should make. Then it will be our European partners holding up the summit, not the UK. The UK must hold out for the fundamental change in our relationship with the EU that fiscal union will make indispensable. The Prime Minister reminds us what this is really about. It is about competitiveness, jobs and the growth of our own economy in the short, medium and long term. And, I have to say, I commend the words of the Deputy Prime Minister, who warned of the dangers of a huge “club within a club.”

Yes, that is exactly the threat we are now facing. Our prosperity and competitiveness are already under constant attack from the burden of EU regulation, and the agency workers directive and the working time directive are typical of the costly and unnecessary regulations that destroy jobs. It is estimated that these two laws alone cost the UK economy £3.6 billion per year, and if we are not prepared to deal with that, we are not dealing with the problem we face. The British Chambers of Commerce calculate that the cost of additional EU regulation introduced between 1998 and 2010 is a staggering £60.75 billion. A recent Open Europe report entitled “Repatriating EU social policy: The best choice for jobs and growth?” has estimated that EU social law costs UK businesses and the public sector £8.6 billion per year.

This afternoon I wish to set out how the Government are asking us to believe two unbelievable things. The first is that a move towards fiscal union and even closer integration in the eurozone will not fundamentally alter the UK’s relationship with the EU, and the second is that the best time for the UK to negotiate to repatriate powers will be not now but in a few years’ time, after the changes in the eurozone have been made and by which time the eurozone crisis will supposedly have been settled. I will then set out what the UK must demand, and is entitled to demand, if fiscal union is to proceed, and finally I will explain why a referendum in the UK on the treaty changes will be desirable, necessary and probably inevitable.

First, fiscal union in the eurozone will utterly change the relationship with the EU, as it will fundamentally alter the nature of the EU itself. We will be linked by treaty to what will effectively be a new economic state, and we will be like a rowing boat dragged along in the slipstream of a supertanker. The EU will be dominated by a bloc of 17 euro countries with shared economic priorities and structures of government—that huge club within a club.

Social policy is just one area in which EU policy is operating contrary to the UK’s national interest. Let us not forget, too, the direct financial costs of EU membership: a net contribution of £7.6 billion by the UK this year, a sum similar to the aid budget and equivalent to around a quarter of our defence budget. Let us remember that all those pressures on the UK arise from our existing terms of membership. That is how the EU institutions operate against our interests. If they are doing that now, what will it be like in future?

The reality of what is happening in the EU was very well set out in The Spectator today by my right hon. Friend the Secretary of State for Northern Ireland. He rightly warns that the EU17 is planning to become

“a new and very powerful country which can dominate us”

through the existing treaty arrangements. The article continues:

“His concern is that a fiscally united eurozone will spend as a bloc, tax as a bloc — and, when it comes to European summits, vote as a bloc.”

As he is right to go on to say:

“It is wholly unacceptable to have a new bloc in which we would be permanently outvoted… if they want to go ahead and form their new country, we want to get the power to run our country back.”

Secondly, the Government are asking us to believe that we will have a better opportunity to discuss our fundamental concerns after the new EU treaty changes have been agreed and ratified, perhaps after another two or three years. Does anyone seriously believe that Germany and France would agree to that? What leverage would we have then? Why would they need to listen after we have already signed the new treaties? This is not only the best opportunity for us to renegotiate our terms of membership; it is likely to be the only one, short of taking unilateral action.

Let us, in passing, dispose of another myth. Unless all EU27 member states agree to those changes, there will be no fiscal union. Even a treaty of the 17 member states would need the support of all member states, or none of the EU institutions could be involved with the new proposed arrangement. That is why my right hon. Friend the Prime Minister was absolutely right when he stated in The Times earlier this week:

“These institutions belong to all EU states”.

We should not allow them to be hijacked by a wholly new organisation.

A treaty change through article 48 of the treaty on European Union—the internal treaty revision procedure—would still require ratification by the UK. Any agreement falling short of fiscal union that avoids treaty change, such as altering protocol 12, as proposed by Herman Van Rompuy in his report, “Towards a stronger economic Union” would still require the UK’s approval at the European Council. There is, therefore, no way we can be bypassed if we place our demands on the table.

Far from it not being the time to renegotiate bringing powers back, this is the moment when we have the most leverage. We cannot afford to settle for another limited opt-out, safeguard, or protocol. That would not be the fundamental change that the Prime Minister and so many others say they wish to see. Things would simply carry on, but under the new arrangements, they would be worse.

What should the Government do now? A recent report by the TaxPayers Alliance, “Terms of Endearment”, sets out a list of powers that it would be desirable to repatriate to achieve a satisfactory new relationship. They include business regulation, employment law, fisheries and agriculture, and immigration and taxation.

I also much admire the work being undertaken by the all-party group on European reform and the Fresh Start project, under the leadership of my hon. Friend the Member for South Northamptonshire (Andrea Leadsom). She is doing a great service for her country. That work certainly needs to be done, but as she acknowledges, it is detailed and complex, and it really would be unreasonable to embroil the EU machinery in such a breadth of contentious issues and in such legal complexity at this time. Attempts at this summit to nibble at certain powers are bound to be disappointing, as opt-outs and protocols have so often been circumvented by the European Commission and the European Court of Justice in the end.

There is an emerging consensus among many Members of Parliament and elsewhere that we need a more straightforward solution. Some of us in the Fresh Start group agreed a mission statement earlier this year to help guide our work. It said:

“UK citizens want co-operation and free commerce with our EU partners, but a majority believes that too much power has been transferred to the EU without their consent; in areas ranging from policing to employment law, from Health and safety to immigration, our citizens want control over their own destiny. The euro-zone crisis has created an opportunity for a new relationship with our EU partners, in which the UK can take more decisions and Brussels fewer; this would be in line with the basic principle that the authority to pass laws should be democratically accountable to those who are affected by them”.

That is relatively uncontentious; I do not see how anyone can object to that manifesto.

At this summit, or later, in the light of what we will learn about the detail of Germany’s intention for the euro 17, the UK should seek agreement in principle that the UK Parliament, and not the EU institutions, decide what laws apply in our own country, and how they should be interpreted and enforced. That would, in effect, be the UK nationalisation of the EU acquis communautaire. There would be no instant annulment of EU directives or regulations. It would be a matter for renegotiation with the EU on a case-by-case basis over time, and the same would apply to new proposals such as the ludicrous financial transactions tax. That would enable us to establish a new relationship with our EU partners on a fundamentally different basis, while remaining in the customs union, which is the founding element of the single market.

The Prime Minister can say, perfectly reasonably, that he has done his best to co-operate with our EU partners in the crisis but that he must take Parliament and the British people with him. He can say that fiscal union is too big a change in our relationship to countenance without a referendum in the UK, but that he should offer to put this new relationship to the British people, and on that basis he would campaign for a “yes” vote. I would vote for that and I would campaign for a “yes” vote, so we can stay in the EU on that new basis. There is absolutely no reason why that proposal should delay this summit. If the other states wanted to do so, it would be up to them, as I have said. That would allow Westminster politicians to fulfil the promises that we have made so often and broken, to give the people the right to decide the destiny of our nation.

As the Prime Minister has said:

“It is wrong that we did not have a referendum on Maastricht, Lisbon and those other treaties.”—[Official Report, 24 October 2011; Vol. 534, c. 33.]

The changes being proposed in this treaty are Maastricht-plus. Refusing to hold a referendum in such a situation will not stand. The Prime Minister told us:

“Future treaty change will bring opportunities for Britain. The country wants us to stay in Europe, but to retrieve some powers.”

Now, we want that opportunity. We may not have another chance like this. This is the time to renegotiate our relationship with the European Union. It is the catalyst that might bring about the reform of the EU. If not now, when?

14:38

[Mr Edward Leigh (Gainsborough) (Con)]

It is a pleasure to serve under your chairmanship, Mr Turner. We are all grateful to my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) for the way he has introduced the debate. I do not intend to weary the Chamber with his level of forensic detail. He has made the case, and I subscribe entirely to what he said.

I want to talk about the broad picture, in historical terms, because I think we lose track of history. We are on the cusp of a truly momentous moment in our country, which could reorder our entire relationship with history. I regret that economics is now considered to be the only science that politicians of note should understand, because history is just as important. The fact is that for 300 years this country had one historical imperative, and that historical imperative is born of the fact that we are a maritime and a trading nation. We have strained every sinew and have fought momentous wars to ensure that there is no conglomeration of power on the continent that could either exclude us from continental markets or have an effect on our trade, particularly our maritime trade.

It is a shame that, in our schools—I know quite a lot about education, because I follow what my children are learning—little knowledge is bred into our children about our own history. There is far too much emphasis on 20th century history and Hitler and Stalin, but our history is far longer than that. Virtually everything that we have undertaken for these 400 years has been to ensure that we retain our independence as a trading and maritime nation. In the 16th century, we were prepared to go to war against Spain because they were affecting our trade. We also did so in the 17th century with the Dutch; in the 18th and early 19th centuries with the French; and in the 20th century with the Germans. All along, I believe that, although we have stood on great principles—that is certainly true of 1914 and 1939—our prime motivation has been to retain our independence.

What we are seeing now is a truly frightening conglomeration of power on the continent. If the German Chancellor and the French President succeed in creating fiscal and monetary union tomorrow, we will voluntarily exclude ourselves. Do not think for a moment that this conglomeration of power would not have a decisive and dramatic effect on us. The United Kingdom accounts for 36% of the European Union’s wholesale finance industry and a 61% share of the EU’s net exports of international transactions in financial services. However, under new voting rules that will come into force in 2014, it will possess only 12% of the votes in the Council of Ministers, and 10% of the votes in the European Parliament. In contrast, France accounts for 20% of the EU’s market in agriculture, but enjoys a veto over the EU’s long-term budget and therefore retains substantial control over the sizeable EU subsidies received by its farmers. An express train is coming in the direction of the City of London.

[Martin Horwood (Cheltenham) (LD)]

On that basis, would the hon. Gentleman support a massive increase in Greece’s voting power over maritime matters, since it is a massive contributor to the European maritime economy?

[Mr Leigh]

To be frank, I do not think that that is a serious point. Everybody knows that the hon. Gentleman is trying to tilt at windmills. Things are getting worse, because the United Kingdom’s level of influence on new financial rules has decreased. Regulation is now geared less towards financial services growth, and more towards curtailing the financial market economy. The perception in many continental capitals—there may be a reason for this—is that the so-called Anglo Saxon light-touch capitalism needs to be reined in. In the past, EU politicians and policy makers generally, but not always, felt constrained from imposing financial regulation on the UK, but that has now ceased to be the case. I agree that United Kingdom regulation has moved from the light-touch concept, but its new focus on regulatory judgment looks set to clash with the prevailing rules-based culture at the EU. In addition, the eurozone crisis is increasingly likely to create exceptional needs and political incentives for the euro countries to act in the interests of their own eurozone of 10.

I believe that all those reasons—the new emphasis on qualified majority voting, our inability to use our veto in this marketplace, and the increasing tendency of the European Union to want to interfere in the financial marketplace—are as big a threat to the main motivator of our economy as anything that we have seen in history. What do we do about it? I think that this is a decisive moment for the Prime Minister. He has to say in the conference that he is not prepared to sign any treaty unless he receives cast-iron guarantees that our financial sector will be set free from interference. If he does not get such cast-iron guarantees, I believe that he must be prepared to veto any treaty. If he is then told that the 10 will go ahead and create their own treaty, he must declare that illegal. Although that may sound like a very dramatic thing to do, I have read in today’s papers that German commentators are already talking about even the threat of our Prime Minister standing up for British national interests as being “obnoxious,” but that is precisely what all European countries do. The first lesson of history, as I have said, is the overwhelming imperative on behalf of successive British Governments over the centuries to protect our commercial interests. The second lesson of history is that all Governments in Europe act in their own financial interest—all are determined by their own history.

We need not say much about recent German history, but we know that there is an imperative throughout German history to extend their marketplaces, particularly into the east in the Balkans. We know that there is an imperative on behalf of French Governments to hug Germany close, so the French President and German Chancellor will be acting entirely in their own national interest, which is what we demand of our Prime Minister.

I hope I will be forgiven for saying this, but we have had enough of spin and of reading about British Prime Ministers who, over the past 20 or 30 years, have said in the days preceding a summit that they will stand up for British national interests and ensure that they are protected, only to come back with a Chamberlain-esque piece of paper, saying, “I have negotiated very hard, got an opt-out from this and that, and succeeded in standing up for British interests,” when such guarantees are not worth the piece of paper they are written on. I suspect that agreements have already been made among the sherpas and the miners, and that our Prime Minister will be offered something, but that will not be enough unless it includes cast-iron guarantees that we can all accept and that protect our vital national interests, particularly those in relation to our financial sector.

[Emma Reynolds (Wolverhampton North East) (Lab)]

Does the hon. Gentleman agree that it is not in our national interest that the Government are deeply divided on the issue, and that the Prime Minister is therefore weak and isolated in the European Union and less able to negotiate the sorts of things demanded by the hon. Gentleman?

[Mr Leigh]

What is in our national interest—we see it in this Chamber today—is that patriotic Members of Parliament are prepared to speak up for the vital national interest. By speaking out this afternoon, we are actually supporting the Prime Minister in his negotiating stance, because I believe that we stand for what the British people want.

[Kate Hoey (Vauxhall) (Lab)]

I would like it to be put on the record that, while not many Opposition Members are present, many of them, as well as many Labour party members and millions of Labour party supporters throughout the country, want to see our Prime Minister standing up for this country and making sure that we get some of those powers back. The most important thing that the country wants, however, is a referendum on the whole question of Europe.

[Mr Leigh]

I am very grateful to the hon. Lady for that intervention. Her courage, independence and intellect are widely admired throughout Parliament, because hers is a voice that stands up for reason and for democracy. I reiterate what the Secretaries of State for Northern Ireland and for Work and Pensions and many of us have said this week. The creation of true fiscal and monetary union throughout much of Europe, with the ability to compel nation states to, in effect, subscribe to particular levels of debt and taxation, is such a fundamental shift of power, that it would be a dereliction of duty, legalism in its worst form and slippery tactics, to say that that does not demand a referendum. We are talking about such a fundamental shift in our relationship with Europe that it would be an appalling attack on the good name of politicians and politics in general if, once again, we were to use mere legalism to say that a referendum is not needed.

I finish by joining my hon. Friend the Member for Harwich and North Essex and agreeing with what he said when opening the debate. An increasing groundswell of opinion in this country says that we want a renegotiation of our relationship with Europe. We want to concentrate on our traditional strength of having the free trade of goods and people with Europe, which, by the way, is not at risk. It is a complete myth that somehow we will lose that when Europe has a massive balance of trade surplus with us. We want a renegotiation and, having achieved that, let us put the decision to the British people and move forward.

15:00

[Kelvin Hopkins (Luton North) (Lab)]

First, may I apologise for arriving slightly late for the introductory speech? I congratulate the hon. Member for Harwich and North Essex (Mr Jenkin) on initiating a very important debate at this historic moment. It is important that Government Members and, indeed, the people of this country know that some of us on the left take a strongly critical view of the European Union and what it is doing at the moment, both in democratic terms and on economic grounds. I will not speak for long because many others want to contribute.

As powers have been transferred to the European Union, we have had a consistent erosion of democracy. Within the European Union itself, real power is not with the European Parliament, although it can make a lot of noise; real power is with the Commission. The Commission is a completely undemocratic body run in a secretive way by the Eurocrats who want to govern our lives bureaucratically, rather than democratically. We have already seen the beginnings of bureaucratic government in Greece and, indeed, in Italy. At some point, the people of those countries will react against that, particularly when they have increasing austerity and unemployment rammed down their throats.

I am concerned about how the economy is being run at the moment. The view is expressed in the media and by our politicians and some of our leaders that somehow dismantling the euro would be a total disaster and that we must do everything that we can to save it. That is not true. Some people who occasionally write in our journals say that dismantling the euro would not be that damaging. In fact, we need a controlled deconstruction of the euro for those countries that clearly cannot sustain their membership because their real exchange rate is way out of line with that of Germany and others. We must create a situation whereby those countries can recreate their own currencies, find an appropriate parity and start to reflate their economies behind those currency barriers.

I think that everyone now accepts that Greece will leave the euro at some point, and when that happens, it will re-establish the drachma. Greece will devalue substantially—30% or 50%—and all of a sudden, it will become the cheapest place in Europe to have a holiday. Everyone will go to Greece for their holidays and the Greek economy will recover, as it will do in so many other ways. Greece will not be able to buy as many BMWs and Mercedes from Germany, but it will start to regenerate its internal economy and its people will start to live a decent life again. Other countries that are much bigger than Greece are in a similar position, and so others will need to follow.

I do not agree with the idea that such an approach would be disastrous for us all. If those countries can get out of the euro, re-establish and start reflating their economies, their economies will start to grow. If we insist on their staying in the euro and having increasing austerity, that will mean more unemployment and a fall in demand, and the whole economy of the European Union will start to go into a deep black hole.

I have said this many times: the idea that being critical of the European Union or wanting to re-establish a national currency is being anti-European is nonsense. I see myself as a passionate European. I am European by history and by virtue of where I live. I love everything about Europe. I love the music, the culture, the languages and the people. I also stand shoulder to shoulder with working-class people in Europe. As a socialist, people would expect me to do that. Working-class people will not benefit from the continuation of this stupid system of a single currency. They will benefit only when their countries can re-establish some independence and start to reflate their economies.

Many millions of working people in those countries feel that their leaders have left them behind. Indeed, during the past two weeks, I spent several days in Copenhagen last week and two days in Brussels this week. I have heard people bemoaning the fact that they are drifting away from their politicians and that there is a gulf between the political class and the people. If people in many of those countries were asked what they want, they would probably say that their views are similar to ours.

The Eurobarometer shows that there is increasing Euroscepticism across the European Union. We are run by a bureaucratic elite who want unity at all costs on their terms and who are leaving behind their own people. We must avoid that. At least we have a more serious Eurosceptic voice in Britain from hon. Members on both sides of the Chamber and, indeed, among our electorate. I hope very much that our leaders will recognise that and start to suggest that we should have separate currencies and go back to a world where we perhaps even have pegged currencies at appropriate parities. Each country should be able to manage its own affairs with its own interest rates, its own fiscal policy and its own parity with other currencies. That is the world that worked in the post-war period, and it has been destroyed by those who want to create a country called Europe—or part of Europe, at least.

[Mr John Baron (Basildon and Billericay) (Con)]

To reinforce that point, the hon. Gentleman may want to reflect on the fact that, since 1945, there have been around 80 situations in which countries have left currency unions. In the vast majority of cases, those countries benefited from that devaluation. It is an economic fact that devaluation allows greater competitiveness, and the austerity packages in Italy and Greece would therefore not need to be so severe.

[Kelvin Hopkins]

I thank the hon. Gentleman for his intervention. Indeed, he is absolutely right, and the Soviet Union is the best example. Many currencies were created after the break-up of the Soviet Union. When Slovakia broke away from the Czech Republic, it created a currency and that was not a problem. I am sure that both economies—certainly Slovakia’s—benefited from that.

From time to time, we have had to adjust the parity of our currency in relation to other currencies. That has been necessary and beneficial. The Bretton Woods settlement made provision for that in 1944; in fact, Bretton Woods wanted to go further. Keynes and others suggest that some countries ought to be required to revalue if they have a very large trade surplus, as indeed one major country in Europe has with the rest of Europe at the moment. Such countries ought to be required to get some balance within the international economy.

[George Eustice (Camborne and Redruth) (Con)]

I congratulate the hon. Gentleman on all the work that he has done over the years to keep Britain out of the euro. Does he agree that a big advantage to a country having its own currency is the ability to act and make decisions? Britain’s experience during the past 10 years has shown that the ability to act is far more important than having a seat at a table where people squabble and cannot agree.

[Kelvin Hopkins]

The essence of democracy must be elected Governments in nation states. Internationalism is not about getting rid of national Governments and international boundaries; it is about working in close co-operation with other countries. We can continue to be internationalist, while retaining our economic independence. That is the way forward.

I shall finish on this note. Things are changing. John Rentoul is a journalist who supported the European idea through decades. Two weeks ago, he wrote in The Independent on Sunday that he has to admit that Peter Shore and Bryan Gould were right to say that the euro would not work. I was friendly with both those great people, and when Bryan Gould was around, I was friendly with him, too. That is a sign that things are changing and that even those who have been what some people unkindly call Eurofanatics are changing their views.

15:08

[Andrea Leadsom (South Northamptonshire) (Con)]

I am delighted to follow the hon. Member for Luton North (Kelvin Hopkins) and to find myself agreeing with him yet again—we also agree on high-speed rail. I am also grateful to my hon. Friend the Member for Gainsborough (Mr Leigh) for his history lesson. I confess that I am one of those economists who tends to look at things from an economic perspective, rather than an historical one.

What concerns me about the latest proposals for eurozone crisis prevention measures is that they simply will not work. It boils down to the fact that what makes the difference between sovereign risk and credit risk is the undoubtedness of sovereign debt, backed by a lender of last resort. In the end, if a country is a sovereign risk, its lender of last resort can print money, its currency can devalue and it can get out of its difficulties that way. The eurozone has as yet failed to address that fundamental issue, and the measures that it now proposes mean nothing more than ever-greater fiscal integration, but without the ability to issue proper sovereign debt. Market chaos will therefore not cease for longer than the short term.

[Mr Jenkin]

Does my hon. Friend share my concern that, even if the European Central Bank was turned into a fully fledged sovereign central bank and printed unlimited sums, it might provide liquidity and buy some space for a while, but the fundamental structural problems between the different economies stuck in the eurozone would not be addressed? Austerity packages would still need to be applied, but the EU’s institutions do not have the democratic legitimacy to impose austerity on countries in that way.

[Andrea Leadsom]

Yes, I agree. The key issue is that if these countries are to have sovereign risk, they must completely guarantee and underwrite each other’s debt and obligations. That is very unlikely ever to be achieved in the EU, which just makes the problem of not having a lender of last resort even more existential for the eurozone. I therefore have genuine concerns about whether the proposals actually offer a solution.

Here we are on the eve of a very important summit, which is designed, on the face of it at least, to put the market’s fears to bed once and for all. The Prime Minister has a strong hand, because the German Chancellor and the French President need a treaty at the 27 member state level, for two practical reasons. First, if they started again, with just the 17 eurozone members trying to create a treaty between themselves, they simply could not do that in the time frame that the markets would permit them. That is a very practical issue, which they need to consider. Under the Lisbon treaty, however, treaty changes can be fast-tracked. Secondly, as was pointed out earlier, the 17, as a group, could not simply annex the EU institutions and use them for themselves; they would require the permission of the 27 EU members. For both those reasons, a treaty is needed at the 27 member state level, and that makes the Prime Minister’s hand very strong.

Like other Members, I am pleased that the Prime Minister is absolutely determined to protect Britain’s interests. What does that mean? First and foremost for every EU member, regardless of whether it is in or out of the euro, that must be about stopping the crisis—there is no doubt about that. If the euro descends into a disorderly collapse, that will easily cost 6% or 7% of British GDP, and it would probably push us into a worse recession than the one after the financial crisis of 2008. There is therefore no doubt that our top priority should be to solve the eurozone crisis.

[Mr David Nuttall (Bury North) (Con)]

As my hon. Friend will be aware, this is not the first time European leaders have met to try to resolve the crisis in the eurozone. Why does she think that eurozone leaders and, indeed, the leaders of the whole EU will be any more successful this time than they were on any of the previous occasions when they met to try to come up with a grand solution to save the euro?

[Andrea Leadsom]

I thank my hon. Friend for those remarks. There is a desire to come up with a solution; but as I said, I do not think that it will work, for reasons of economics and the markets’ actions. I hear what my hon. Friend says.

Britain is clearly struggling to recover. The eurozone crisis is testing us and is close to pushing us back into a no-growth, or even a recessionary, period. We therefore need to look after Britain’s interests by not only protecting the eurozone, but ensuring that we create safeguards for our most important industry, and I want to put in a plea for financial services.

There has been a lot of talk about holding a referendum, changing the common agricultural policy or simply repatriating powers, but what do all those things mean? If we hold a referendum, what would the question be? How quickly and easily could people understand enough about the implications of a question such as whether we should allow the 17 fiscally to unite? That is an extraordinarily complicated question, and referendum questions really need to be along simple lines, such as whether Britain should be in or out of the EU. At a time when these things are in flux, that is almost impossible to answer.

[Mr William Cash (Stone) (Con)]

I should like to ask my hon. Friend a simple question. How much more important can things get than when we face a fundamental change in the relationship between ourselves and the EU? It is as simple as that. This is an historic question, and it demands a referendum. Why does she think otherwise?

[Andrea Leadsom]

We will just have to agree to disagree. If people are in government, they govern. At the current moment, a referendum would be extraordinarily important in the history of Britain, but it would be extraordinarily difficult to get the sort of answer that would give the Government a coherent direction. It is for the Government to make the best decision at this moment. For what it is worth, I have always thought that a referendum needs to come at the tail end of a renegotiation of Britain’s relationship with the euro and that it should be used to ratify such a renegotiation, based on the simple question of whether Britain should be in or out of the EU on the basis of a pre-negotiated set of terms with the EU.

[Mr Jenkin]

I could accept that approach, and my hon. Friend has answered her own question about what the referendum question could be. We will not agree the treaty texts at the summit; the meeting will discuss issues of principle and the treaties will then be drafted, but their ratification will take months if not years. We are talking about a referendum some time during that period to ratify a new deal for Britain. Does my hon. Friend not think that that would be a sensible way to go? Would it not strengthen our Prime Minister’s hand if he was to put that view to those at the meeting this weekend?

[Andrea Leadsom]

I am perhaps not understanding. The calls that I have seen in the media are all about our needing a referendum, but now is not the moment for one.

[Mr Jenkin]

If I may say so, my hon. Friend has seen a bit too much of the Government’s propaganda, rather than heard what some of us have been saying. We cannot, of course, ask for a referendum on the spur of the moment; we are asking for a referendum on renegotiated terms of membership, which we desperately need and which this summit demonstrates that we will need. We should be able to tell our European partners, “Go ahead with your proposals for fiscal union. We don’t think they’ll work. It’s a big change for us, so we need these measures in return. As part of the ratification process, we will put this to the British people and recommend a yes vote, as long as you agree our terms.”

[Andrea Leadsom]

I thank my hon. Friend. In truth, right now, I genuinely believe that the Prime Minister has to focus his effort on creating the best solution for Britain, and that is what he is doing. As for all the demands for referendums, the fact that I am confused about what my hon. Friend has been saying, although I am quite close to these issues, demonstrates that other people will doubtless also be confused. The demands are seen as our party, at least, trying to cause trouble for the Prime Minister. For that reason alone, now is the time to get behind the Prime Minister, who has promised the British people that he will defend our interests.

Let me come to why defending the City is the key priority at the moment. People talk about renegotiating EU directives that have already been implemented, but as we have found as part of the Fresh Start project work, that is real spaghetti; it is extraordinarily difficult to unwind existing, implemented policies. I am a very practical person, and the best approach in terms of doability is to look at what has not yet been implemented and what the biggest threat to Britain is. On those two counts, there is no doubt that we should focus on financial services.

Financial services account for 11% of Britain’s tax take each year—about £50 billion. It employs nearly 2 million people; it is our biggest export; and it creates a huge positive trade surplus. Given that we have a big overall trade deficit, we would be looking at a far worse trade balance without financial services. Added to that is the fact that the potential for the future growth of financial services is all outside the eurozone; it is in the BRIC countries—Brazil, Russia, India and China—and America and Asia. That is where the potential lies. Yet, before the financial crisis, Britain was in a strong position in creating an EU financial services single market. We were influential. That was all about deregulation, open access to markets, growth and jobs. Britain did very well out of that and so, by the way, did the rest of Europe. Other eurozone countries did extraordinarily well, because the City was the entry-point to European financial services markets. That benefited us all.

Since the financial crisis, however, the agenda has changed. Britain has rightly changed its regulatory environment by greatly increasing controls, the closeness of supervision and the requirements for capital, liquidity and so on. The EU’s goal has been more to ban what it does not like: “Let’s reduce financial activity; we will constrain, prevent and reduce what is going on.” Nowhere in the EU treaties is there any talk of prudential decisions that the EU might make that would go against the fundamental commitment to single markets and growth opportunities, so the 49 EU directives and other proposals on financial services coming down the track are already in breach of the spirit of the EU treaties, which are all about creating better markets and more access.

I want to mention a couple of those matters in particular. First, on the financial transactions tax, people may think, “They will never do it; it would be cutting off their nose to spite their face and the business will simply go elsewhere.” Actually, however, I think many people in the EU are determined to do it, because they do not want the business. They think that Anglo-Saxon light-touch regulation and the success of financial services are partly to blame for the eurozone crisis. They are quite wrong, but that is where they lay the blame, so they would consider a financial transactions tax that would drive business abroad to be a good thing. To anyone who thinks, “They would not do it,” I would say that they would if they had the opportunity. Of course, that would be disastrous for Britain. It would not be a tax on bankers; it would be a tax on pensioners, investors and savers, because it would go straight to the bottom line of every investment portfolio. If anyone said that it would serve bankers right, I would reply that it would affect not bankers but savers. I could not support that.

Secondly, a slightly unbelievable idea has been proposed in the eurozone that a clearing house with more than 5% of its turnover denominated in euros should relocate to the eurozone. That would be daylight robbery and steal our business, and I am glad that the British Government are already challenging it in the European Court of Justice. Where in the single market treaties, which are all about growth and jobs, does that appear? How would it support British growth and jobs? It would not. I am extremely concerned about the tone and extent of EU directives coming down the track. They are not yet implemented; but unfortunately, under QMV, they could be implemented without Britain’s say-so.

[George Eustice]

I agree with my hon. Friend that the Prime Minister is right to prioritise the financial services directives in the negotiations. Is she aware that Open Europe has today published a poll of City institutions showing that more than 60% of them believe that the burden of regulation coming down the tracks from the European Union outweighs the benefits of the single market?

[Andrea Leadsom]

I have not seen the poll—I have been looking forward to seeing it—and I am not surprised by what my hon. Friend says. Although, as I have said, the treaties are all about expanding markets, growth and opportunities, some of the unintended consequences of EU policies have been the complete opposite of that, and never more so than in financial services. I think that a deliberate attempt has been made to reduce financial services activity in the eurozone.

Financial services should be the top priority for the Prime Minister. He has been clear about drawing a marker in the sand to the effect that Britain wants a secure legal agreement that, in the event that financial services legislation is against Britain’s best interest, we can prevent it from being imposed on us.

[Emma Reynolds]

The hon. Lady is making an eloquent speech. Does she support our idea that, to protect financial services and decisions on the internal market, the Prime Minister should call for all non-euro member states—the 10—to be observers at the euro group meetings that will be held so regularly?

[Andrea Leadsom]

Any attempt that the non-eurozone members make to protect their interests is important, but perhaps an even better way to do it would be to ensure that, if any vote is passed under QMV by the eurozone bloc, there should also be a supporting vote under QMV on the part of the out-group of 10, at a very minimum, to ensure that the in-group could not ride roughshod over the out-group.

[Mr Leigh]

We now know that the policy of Her Majesty’s loyal Opposition is to be an observer.

[Andrea Leadsom]

I thank my hon. Friend for his intervention.

[Mr James Gray (North Wiltshire) (Con)]

I entirely agree with my hon. Friend about the threat to financial services and the importance of focusing on the City and welcome the fact that the Prime Minister has said that he intends to do precisely that at the summit. None the less, does my hon. Friend agree that there is a subtle risk that he could come back from the summit, waving, Chamberlain-like, a piece of paper in the air and saying, “Haven’t I done well? I have protected a number of things that were under threat in the City of London”—despite having ignored the historic opportunity of the summit and allowed several other things to slip by without repatriating anything at all in the process?

[Andrea Leadsom]

That is an important point, because the Prime Minister will not be just having a chat and getting general agreement; he will want to get a firm assurance and put a marker in the sand saying, “We feel your pain and share your goal and will want to protect Britain’s specific national interest by including our own requirement in the treaty.” There cannot be simply a gentleman’s handshake, so that what is agreed can be watered down later. There must be a firm commitment on all sides that Britain’s national interest will be protected.

[Mr Nuttall]

Does my hon. Friend agree that the problem with marks in the sand is that, when the tide comes in, they get washed away?

[Andrea Leadsom]

That is a good observation and I have noticed that, but it was not what I meant, and my hon. Friend knows it. What I have outlined is down to the Prime Minister to achieve. He has committed to do it. We must have confidence in his determination to follow it through.

[Mr Stewart Jackson (Peterborough) (Con)]

I respect my hon. Friend’s intellect and erudition on this issue, but she will be familiar with the story of Pyrrhus and his remark, “One more such victory and we are doomed.” We can very well defeat the straw man of the financial transactions tax, while we ignore the creation of a de facto country, perhaps called Greater Germany, that will militate against the long-term financial, economic and political interests of the United Kingdom.

[Andrea Leadsom]

I do not see things as starkly as that. We are now in a position where the Prime Minister can protect Britain’s interest and is committed to doing so. We need to give him the chance to do that.

I want briefly to discuss things that we can do ourselves. First, there is an awful lot of talk about repatriation and things that we could do differently, but in the long years of the previous Government, the EU was largely ignored and many opportunities to improve how we do things at home were missed. Some quick examples include how we implement EU directives. We have an opt-out from the working time directive, as do 16 other member countries, which makes a majority in the 27, if my maths serves me correctly. We could band together with the other 16 and demand that the EU reconsider the directive in its entirety. I have talked to a British delegation of MEPs who think that there could well be interest in doing that. Why have we not done so, if we all like to think that the directive is disastrous?

Secondly, why do we have so few British workers in the EU institutions? Why are none of our people employed there? Why did the previous Prime Minister choose to put someone in the post of High Representative of the Union for Foreign Affairs and Security Policy, instead of having someone in the financial services commissioner post? It has been left to a Frenchman who does not understand financial services particularly well to do that job for us.

Something that should be entirely within our gift to sort out is scrutiny in Parliament, and we do not do enough of that here. We leave it up to the incredibly overworked European Scrutiny Committee, which is ably chaired by my hon. Friend the Member for Stone (Mr Cash). In areas such as financial services and agriculture, we should pass directives on to the specialist Select Committees, which have the interest and expertise to look at detailed areas, and ask them for their help and support to ensure that, before we receive directives that we then have to implement, we have done the best job that we possibly can for Britain.

15:30

[Martin Horwood (Cheltenham) (LD)]

I start the Liberal Democrat contribution to the debate. This may alarm the hon. Member for Harwich and North Essex (Mr Jenkin), but I am going to agree with him about something. This debate should have taken place on the Floor of the House. As the hon. Member for South Northamptonshire (Andrea Leadsom) has just pointed out, we need to reform how we scrutinise European affairs in this Parliament. It is not adequate. In fact, I have already made a contribution to the discussions on scrutiny by suggesting to Ministers that we involve departmental and other Select Committees in scrutinising forthcoming European legislation, as she has just suggested. I strongly welcome that suggestion.

[Mr Cash]

As Chair of the Committee in question, I assure the hon. Gentleman that we frequently have arrangements whereby we refer particular directives and regulations to departmental Select Committees. Sometimes they do not actually look at them, despite the fact that we have asked them to do so. We also asked the Government, on behalf of the European Scrutiny Committee unanimously, for a full three-hour debate on the Floor of the House, of the kind that is taking place here, and it was refused. That is the state of play. That comes largely from the fact that we are in a coalition.

[Martin Horwood]

I do not think that it comes from the fact that we are in a coalition. I do not want to risk my Liberal Democrat credentials by agreeing with the hon. Member for Stone (Mr Cash) as well, but I think that this issue is worthy of a debate on the Floor of the House. I know that his Committee refers matters for scrutiny to departmental Select Committees, and it is not good enough if those Committees are not prepared to scrutinise those matters. They have the expertise and the Committee experts who can make a serious contribution to the scrutiny process. I restrain myself from suggesting that that might remove the necessity for the European Scrutiny Committee, but the point is that we need wider and deeper discussion of European matters in this Parliament, and I entirely agree with that.

One of the healthy things about being in a coalition is that we can bring different points of view on issues such as Europe, as well as others, to the table without actually having to conceal them and pretend to be coming from exactly the same place, which the previous Government had to do. None the less, it is slightly frustrating. I thought that we had settled quite a lot of the issues that are being debated at the moment. When we discussed at inordinate length the European Union Act 2011, which has already been passed, we spent countless hours debating when to hold a referendum and when to look at renegotiation of powers. We came to a conclusion and a settled view, as a coalition and as a Parliament, which was pretty clear. It represented something of a compromise between the Liberal Democrat and the natural Conservative positions, which seemed quite acceptable: a treaty change should be subject to an Act of Parliament, but if that treaty change involves a fundamental and significant shift in powers from the British to the European level of government, then that should be automatically subject to a referendum. Yet now, only a matter of months later, this whole issue seems to have been reopened. That is a problem, because it makes it more difficult—let us put it no more strongly than that—for Ministers to negotiate with confidence, knowing what position they are representing back in this country. We are not so much sending them naked into the debating chamber, as sending them so wrapped up in unrealistic expectations that they cannot move, which is a problem.

Ministers need to focus on the issues at hand in the Council, which are threefold. The eurozone is not the only issue, because there are two other important topics for discussion. On energy, if I can put it in the language of this debate, I speak from a nuclear-sceptic point of view. There is the welcome process of independent scrutiny, at European level, of the safety of European nuclear programmes. In the wake of the Fukushima disaster, which will potentially cost the Japanese economy hundreds of billions of pounds, it is incredibly important that the process is ongoing and rigorous. If I have a concern that I would like to be raised at the European Council, it is that the Commission report makes the case for tighter safety rules but does so in a limited way, even though it concedes that many of the regulations that were already in force before the Fukushima disaster in March are still not being applied throughout the European Union. Some states, including the UK, Poland, Slovakia and Belgium, have not updated national legislation in line with a European directive from 2009. At present, there are no common safety standards or criteria for nuclear power plants across the European Union. [Interruption.] The hon. Member for North Wiltshire (Mr Gray) says, from a sedentary position, “Good.” He may have a lot of confidence in British nuclear safety regimes. I hope he has exactly the same confidence in Polish safety regimes and in the safety regimes of other European nations. The bad news for him, I am afraid, is that radioactivity, as we found out after Chernobyl, is no respecter of national boundaries.

[Mr Gray]

Does the hon. Gentleman recall that Chernobyl is in fact in Russia?

[Martin Horwood]

It is not, actually; it is in Ukraine. It was in the Soviet Union at the time, but the point is that it is only quite recently that some farms in Wales have had all restrictions lifted as a result of the radioactivity that swept right across Europe. The point is that the wider we can spread safety regulations on this the better. The European Union is an important vehicle for doing that. I hope that that message about a tighter safety remit and tighter safety monitoring regime has been well taken.

[Mr Jenkin]

Will the hon. Gentleman give way?

[Martin Horwood]

Is this on the subject of nuclear energy? Oh, okay.

[Mr Jenkin]

We have one of the best nuclear inspectorate and safety regimes in the world, if not the best. Is the hon. Gentleman seriously saying that he would prefer nuclear inspections to be run by the people who could not even get their accounts audited for the past 15 years, and who gave us the common agricultural policy and the common fisheries policy? Does he not see that these multinational European bodies are grossly inefficient and hopelessly unaccountable, which is why the British people have had enough of them?

[Martin Horwood]

Well, no, in short. If the hon. Gentleman has such enormous confidence in Britain’s safety regime, then he should be trying to export those safety standards to the rest of Europe. I cannot see how he can possibly conceive of a better vehicle for doing that than the European Union. Is he seriously going to approach 27 different European nations and try to encourage them to adopt our safety standards, or is he going to use the vehicle of—

[Mr Jenkin]

rose—

[Martin Horwood]

No, we need to move on from safety regimes. Is the hon. Gentleman seriously suggesting that that will be a more effective approach than trying to reach a common position across the European Union?

[Steve Baker (Wycombe) (Con)]

I am a chartered aerospace engineer who has a friend who is a chartered aerospace engineer working in the nuclear industry, and we agree that nuclear industry standards are quite poor. When I was a kid, the Eurofighter Typhoon was flying quite successfully as the EAP, with just British Aerospace backing it. What slowed that project down was making it pan-European. I do not share his optimism about the idea of pan-European technical standards, which is not borne out.

[Martin Horwood]

I congratulate the hon. Gentleman on his qualifications.

Apart from the eurozone, the other key issue that will be discussed at the summit is, of course, the accession of Croatia. We very much look forward to the accession of Croatia, which is a brilliant example of the transformative process of applying for membership of the European Union. Croatia has managed to address so many issues relating to its judiciary, economy and the reform of its political processes. That is an example that should be followed by other candidate countries looking to accede to the Union. It is inspiring to remember that in the area of Europe most recently torn apart by war, those in the Balkans still see European Union membership as something that helps to guarantee future peace. That is one of the founding principles of the European Union and one that we should not lose sight of in the current melee over the eurozone and possible treaty reforms.

The third, and obviously the most important, issue that the Council has to address is the crisis in the eurozone. Here, I think, we are on common ground in realising that the threat of a disorderly collapse in the eurozone is of enormous importance to this country. If the eurozone goes down, it will do considerable damage to the entire world economy, let alone to the British economy. It should be our No. 1 national priority at the Council to advance the process of securing the future of the eurozone, however it happens to proceed. That the eurozone countries have not yet agreed the treaty process or the rules that ought to surround it is a matter of enormous frustration and anxiety. It reflects badly on the leaders of those countries that they have not yet come to such an agreement.

The second clear national priority has to be to defend Britain’s interests in the process, which is rightly the instinct of the Prime Minister at the Council. To come with a list of unrealistic demands that would hamper and threaten the whole process of resolving the crisis, however, would be spectacularly reckless and playing politics with Britain’s national interest. I apologise to the thinly attended Labour Benches, but I am afraid that as a country we are still deep in the process of cleaning up the mess left to us by the previous Government. Our economy remains in a fragile position, which is possibly more fragile than we had expected at this stage.

[Emma Reynolds]

When the Labour party left government, the economy was growing. The policies of this Government have choked off the recovery.

[Martin Horwood]

The economy is still growing, actually, but that is a debate for another day. The voters made up their mind about who was responsible for the economic mess that we found ourselves in.

We are still in a vulnerable position, and all colleagues need to be able to go back to their constituencies, to look pensioners, small business people and others in the face and to say that we are doing everything that we can to speed a resolution of the crisis and that we are not throwing spanners in the works.

[Mr Cash]

Does the hon. Gentleman not agree that it is extremely unwise to make assumptions about the existing arrangements? They include so much over-regulation, centralisation and deprivation of oxygen for small and medium-sized businesses not only in this country but in the European Union that, precisely because there is no growth there—for all those reasons and some others—it is impossible for us to grow, what with the 40% of trade that we have with those other countries. Solving the causes of the failure of the European Union is so necessary.

[Martin Horwood]

The hon. Gentleman makes a rather interesting point about regulation of the smallest businesses, because we have a rather good case study. The Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for Kingston and Surbiton (Mr Davey), has been active in going to other European Ministers, in particular those with a similar outlook on economic policy, and taking a collaborative, positive and co-operative approach to reach agreement that we should lift onerous accounting rules from the smallest businesses, not only in this country but throughout Europe. [Interruption.] It might be a small concession, but it was progress through a collaborative process that has lifted some of the burden of European regulation from businesses in the UK. There will be other examples of what Members may call repatriation, if they want. In fisheries policy, we are likely to see the movement of powers over fisheries from the European level to national and regional levels in future. So it is possible to achieve change without a confrontational attitude and, as in both those cases, without treaty change.

As I have said, to defend Britain’s interests during the whole process is important. One of the ways to do so is to prevent marginalisation, which is a real danger. To an extent, I share some of the anxieties expressed by Conservative Members—it could happen that we might be excluded from the core of decision making in Europe—and I would not be happy with the Labour party’s approach that we should be observers to the process. I want us to be participants. We must ensure that Britain plays a central role in whatever new structures emerge from the crisis, and we need to be able to discuss and debate with the members of the eurozone how their economies move forward. As EU members, we will always have more say in the process than we would do if we committed the ultimate act of economic suicide and left the European Union, as some hon. Members might want. The risk, however, is that some marginalisation is possible, although we increase the risk of that if we roll up at European Councils with a list of unrealistic demands and throw a spanner in the work of resolving possibly the biggest crisis to have faced continental Europe for decades. That does not do us much good.

[Mr Nuttall]

Will my hon. Friend give way?

[Martin Horwood]

I will give one example. The hon. Member for South Northamptonshire (Andrea Leadsom) mentioned clearing house regulations. Since that dealt with transactions governing euros, how would we have influenced that legislation had we been outside the European Union? We might have found that by leaving the European Union we had excluded ourselves from such decision making and enabled the EU to take precisely that kind of decision, to the immediate detriment of the British economy and the status of the City of London, which is a European asset as well as a British asset.

[Andrea Leadsom]

Specifically, that would not have happened. It is only because the UK is in the EU that the EU can require London clearing houses to go under this type of legislation. If we were not part of the EU, it would not affect us.

[Martin Horwood]

I hesitate to challenge an expert in her own field, but we might find that the kind of interests that we are able to defend in economic policy, and financial policy specifically, within the European Union would not be so easily defended if we were outside the EU. It is one thing for Norway or Lichtenstein to be allowed access to European markets and to gain the benefits of the European economic area, because they do not pose much of a threat to Germany, France or the other EU economies. It would be different if an economy the size of Britain’s was taking advantage of such a situation or trying to mould the rules to our own advantage. It is critically important to the City of London that we retain our membership of the EU.

[Mr Stewart Jackson]

The hon. Gentleman makes a number of assumptions about the likely ramifications of our leaving the European Union. Was that the basis on which he offered the voters of Cheltenham at the last general election a Liberal Democrat policy prospectus that included an in/out referendum? Yet, in the face of massive and irrevocable constitutional change today, he has resiled from that undertaking to his own electors.

[Martin Horwood]

I have resiled from no undertaking whatever. There is a great habit of selective quotation of the Liberal Democrat manifesto. The whole sentence said that we would offer an in/out referendum at a time of a fundamental shift in the relationship between Britain and Europe. That is why we supported a referendum at the time of the Lisbon treaty—I am not sure which way the hon. Gentleman voted on that, but I do not remember many Conservative Members coming into the Lobby beside us. Incidentally, we also supported a referendum at the time of Maastricht, and did not succeed then, either. If there is another fundamental shift in Britain’s relationship with Europe, I fully expect us to support a referendum at that point.

[Mr Jenkin]

Is the hon. Gentleman merely another of those politicians who only promises a referendum when he knows that he cannot deliver it?

[Martin Horwood]

That is a lovely rhetorical line, but that accusation has been levelled at the Liberal Democrats on many fronts, and yet we find ourselves in government and sticking to the letter and the spirit of our manifesto on a whole range of issues. [Interruption.] I opposed the increase in tuition fees and think that we ought to have stuck to that policy, too. We have, however, certainly delivered on the pupil premium and a whole range of things, such as taking many of the lowest paid out of taxation altogether or developing the green economy, and we will stick to our pledge on the European Union as well, which is to act responsibly and to propose referendums when it is appropriate, which will involve a wholesale examination of the relationship of nation states to the European Union. That is not happening at the moment, because we are looking at an economic crisis in which the eurozone countries face a fundamental question about control of fiscal discipline. Germany, quite reasonably, is saying that, in return for any shift towards, for instance, the European Central Bank acting as a lender of last resort, some process of fiscal discipline that is rather stronger than the one that has operated inside the eurozone until now must be enforced. The other member countries, however, retain the choice whether to submit to that fiscal discipline or to plan some different future for themselves.

[Mr Nuttall]

On a specific point about the proposals that the Franco-German axis has come up with, is it not the case that if the eurozone had stuck to the rules that already govern it, it would not be in the mess that it is in today? It is in a mess, because no one was enforcing the rules.

[Martin Horwood]

I surprise myself again by finding myself in agreement with that statement. I completely agree with it. That was one of the weaknesses of the euro’s establishment and the stability mechanism surrounding it. It is precisely the sort of weakness that the eurozone countries must now address, and I think they clearly understand that, too. I suspect that some member Governments—Greece may be one—deeply regret having entered such a relaxed arrangement without the sort of fiscal discipline that was needed to make it work. That is probably common ground among people of all parties in many different countries.

The important message for Ministers going to the European Council and for the Prime Minister is that British national interests are at stake in the process, but that we can serve them best by acting positively and collaboratively and by taking an approach based on co-operation, not confrontation. As I have said, it is not always necessary to confront people to achieve shifts in responsibility to national level—we have seen that with regard to small businesses, and we may see it with regard to fisheries—and we must develop that sort of grown-up approach to EU politics, not a constant obsessive, confrontational attitude.

When it comes to talking about the Prime Minister’s position being comparable with that of Neville Chamberlain, and therefore implying that in some way our European partners are comparable to the Nazis—[Interruption.] I am sorry, but if the Prime Minister is Neville Chamberlain, who is he getting the piece of paper from? Such language in this debate has been deeply offensive. It is unworthy of this Parliament; it is unworthy of the Conservative party; it is profoundly insulting to the Prime Minister; and it is exactly the sort of xenophobic rhetoric that risks discrediting this country and deeply damaging our national interests.

15:52

[Mr John Baron (Basildon and Billericay) (Con)]

It is a pleasure, Mr Turner, to serve under your chairmanship. I congratulate my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) on orchestrating this debate. I will make my comments relatively short, because I am conscious that other hon. Members wish to speak. Having said that, I believe that the EU summit is a defining moment, and a once-in-a-lifetime opportunity to create a better relationship with the EU. I sincerely hope that the Prime Minister seizes that opportunity and seizes the moment.

[Mrs Anne Main in the Chair]

It is my belief that we need a fundamental renegotiation of our relationship with the EU, based on free trade, competitiveness and growth, and not political union and deadweight regulation. That is a relationship that other countries enjoy. One is not speaking of utopia or a textbook theory. Other countries enjoy such a relationship. For example, Switzerland has meaningfully good relations with the EU and trades with it freely, but it is not weighed down by political regulation and moves to ever closer political union. Such a relation reflects the fact that in 1973, and then in 1975, the British people voted for a free trade area and not political union. It reflects the fact that people generally are fed up with mindless interference from the EU. It reflects the fact that businesses, particularly small and medium-sized enterprises, are fed up with regulation, some 90% of which comes from Brussels.

Such a relationship would reflect the fact that taxpayers are fed up with the increased cost of the EU. If one takes into account the diminishing rebates, the budget will come to around £40 billion over the next seven years. That would pay for a 6p cut in small business corporation tax in each of the seven years. My goodness, would that not be the spur for growth that we all want and are wishing for? I also believe that such a relationship would reflect the fact that this Conservative party—my Conservative party—is fed up with promises to rein in the EU, when very little has happened over the almost 40 years that we have been a member.

I am slightly more sceptical than most that we can work the repatriation of powers. There has been a lot of talk about that, but our history in repatriating powers has not been good. Let us take the working time directive as an example. We all remember the great hullabaloo about the importance of extracting the opt-out from that directive. It will be no surprise to hon. Members here that that directive was reintroduced through the back door. What are we doing now, before the summit? Once again, we are talking about repatriating powers such as the working time directive. If my memory serves me correctly, that power was supposed to be repatriated some time ago.

[Mr Jenkin]

The problem is that the word “repatriation” is open to confusion. The basic principle of the EU legal system is that powers cannot be repatriated. There is a judicial doctrine—the doctrine of the occupied field—and once member states have delegated a power to the European Union, it cannot be recovered. There is no mechanism for doing that, which is why we need a fundamental change in our relationship with the European Union to address the fundamental problem. The problem is the treaties.

[Mr Baron]

As I said at the start, I do not buy the repatriation of powers. I want a fundamental renegotiation of our relationship with the EU based on free trade, competition and growth. Such a renegotiation would recognise the fact that we want good relations with our EU neighbours, and we want good trade relations in particular, but we recognise that we need to engage better with the faster-growing economies throughout the world. In many regions of the world—those of the BRIC economies—growth rates are so much faster. This is not a little Englander approach; it is a globalist approach that recognises that we need to engage better with those faster-growing areas.

[Mr Philip Hollobone (Kettering) (Con)]

I am hugely enjoying my hon. Friend’s speech; he is making some excellent points. Does he agree that in 1980 the EU’s share of world trade was some 30%, but by 2020 it is likely to have fallen to 15%? In other words, it will have halved over a period of 40 years, yet we find ourselves increasingly brought together with part of the world that will grow more slowly than the BRIC economies.

[Mr Baron]

My hon. Friend makes an excellent point. There is much talk of Germany winning market share, but one forgets that Germany has benefited from an artificially weak currency, to which the periphery nations have contributed. Germany has had a very strong manufacturing base allied to a weak currency, which has made for heady growth, but if we take Europe as a whole, it is falling behind. Many people do not recognise that.

I worry that the Government have ruled out the idea of a referendum. I think that is a mistake as we go into a summit, because it cuts off a key negotiating ability. I also worry that we seem to be saying we do not want a two-speed or two-tier Europe, but on the other hand we are trying to join in the chorus of “we must save the euro”, which can only mean closer fiscal union, which can only result, as Angela Merkel has readily acknowledged, in a two-tier, two-speed Europe. It is nonsense and a contradiction. Anybody who believes that closer fiscal and political union will not fundamentally or materially affect our relationship with the EU is living in cloud cuckoo land.

Before I finish, I will attempt to knock down one or two myths surrounding the debate. The first myth is that we must save the euro. In my 15 years in the City running hundreds of millions of pounds for charities, pension funds and private clients with some very large fund management groups, I have never heard so much economic clap-trap. The whole concept to begin with was flawed. The idea that we can bind divergent economies into a single currency without full fiscal union was and remains a mistake. Not only the concept but the solution is flawed. The problem is that we are not addressing the core issue of competitiveness. We have Governments spending too much relative to their means.

This recession, unlike all other post-war recessions, is built on debt. It is a deleveraging, not a destocking, recession. Accordingly, we have to grow our way out of that and reduce our debt. We cannot, as we all know, borrow our way out of debt. The solution does not fit, so I am not convinced that the solution put forward by the present eurozone leaders will work, anyway. However, let us give them the benefit of the doubt. Let us say it buys time. The problem is that by cutting off the option of devaluation—put that and the fact that the solution does not fit to one side for a second—even if it buys time, we are making the austerity packages much worse.

I have previously broached the fact that there have been some 80 situations in which countries have left currency unions since the second world war and have benefited from the growth that has followed. We saw it in our own case when we exited the exchange rate mechanism. By binding countries into a single currency, we have to make the austerity packages more severe, because we are ruling out the option of devaluation, which would increase competitiveness. The eurozone leaders do not seem to understand that. If there was an orderly break-up of the euro, certainly for the periphery nations, the Germans would still want to sell their cars and the French their wine. Believe me, life would go on.

Many say that the banking system could not survive the write-off of the debts. That point was made earlier. However, the markets have already discounted the debt in many of these countries by 60%. It would not come as much of a shock if there was a 50% write-down. In many cases, that would represent a 10% uplift by the banks themselves. This is an economic point that has not been widely acknowledged and accepted. The markets have already downgraded the debt, so this will be a downgrade instituted by politicians. Look at what the markets themselves are telling us.

Nobody has been able to quantify or substantiate why it would create economic mayhem if we did not save the euro. Siren voices also suggested that if we left the ERM something similar and awful would happen. Actually, almost to the day, our economic recovery kicked off.

Finally, if the eurozone wants to crack on and create closer fiscal union, that is fine. That is not, or should not, be mutually exclusive to our objective of wanting to negotiate a different and fundamentally new relationship with the EU. They are not mutually exclusive. Many commentators seem to suggest that by wanting to renegotiate the relationship, we are breaking up or being awkward about what the 17 eurozone members want to do. That is not the case. If they want to take that path, it is up to them, but their taking that path should not restrict us.

16:03

Sitting suspended for a Division in the House.

16:17

On resuming—

[Mr Baron]

I will keep my conclusion brief. It is often said that now is not the right time to renegotiate our relationship with the EU, but we have been told that for almost 40 years. If this is not the right time, when will be? The idea, perhaps, is that we will somehow renegotiate a new relationship after the crisis, but as I have said, our track record on doing such things is not good if one looks back over the past 40 years.

We are at a defining moment, and we need a fundamental renegotiation of our relationship with the EU based on free trade, competitiveness and growth—just like that enjoyed by other countries such as Switzerland—and not on the political union and dead-weight regulation that is harming this country and making it far less competitive than it should be. We are not paying our way in the world, and we need to fundamentally readdress the whole situation and create a new relationship. Now is an ideal time to do that. Growing elements in Parliament know that, as do people outside this place. My hope is that the Government, and particularly the Prime Minister, will now understand that as well.

16:19

[Mr William Cash (Stone) (Con)]

I congratulate my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) on securing this extremely important debate. It is a substitute for the debate that the European Scrutiny Committee has insisted should be held on the Floor of the House, but which has been declined by the Government so far.

[Mr Hollobone]

I am looking forward to my hon. Friend’s speech very much indeed. Would it not have been marvellous if the Leader of the House had timetabled an opportunity this week, perhaps on Wednesday afternoon, for the Prime Minister to hear hon. Members’ views on what he should say at the European Council? Then he would have been able to jet off today to that summit with all the suggestions fresh in his mind. Instead, it was up to the Backbench Business Committee to timetable the debate for this afternoon.

[Mr Cash]

I agree. People were not listening back in the days of Maastricht and they are not listening now. That is the problem. I give special thanks to my hon. Friend the Member for Harwich and North Essex not only for this debate but for the consistency that he has shown since the days of the Maastricht rebellion, which I had the honour to lead all those years ago and of which he was a very important member. He was a new Member of the House and he understood the position immediately, as did my right hon. Friend the Member for Chingford and Woodford Green (Mr Duncan Smith) and a number of others who have remained in the House.

This is not only an historic question but a national question. The now absent hon. Member for Luton North (Kelvin Hopkins) mentioned Peter Shore and Bryan Gould. When I set up the Maastricht referendum campaign, it was hon. Members on the other side of the House, such as Peter Shore and Bryan Gould, who joined me in that campaign. We presented a petition, which many people may recall, of well over 500,000 signatures; in fact, we reckon that we got 700,000 signatures all told. The petition was deposited, calling for a referendum on the Maastricht treaty. I was delighted that my right hon. Friend the Prime Minister said only a couple of weeks ago that there should have been a referendum on that treaty. As one who was very deeply engaged in the whole of that process, from beginning to end—much to the dismay of those who have now, in my opinion, lost the argument—I believe that the necessity of knowing the views of the British people remains implicitly entrenched in the arrangements that are now coming forward and that therefore a referendum is essential.

I should now like to move on to the present time. I want to address the question facing us today in terms of the broad landscape. I wrote a pamphlet that was published in effect in this very room when we had a conference between the leading Eurosceptics and the leading Europhiles. It involved Charles Grant of the Centre for European Reform, Roland Rudd of Business for New Europe and a galaxy of others. Both sides regarded it as essential that we should get together and properly debate the questions on both sides of the argument with many of the best people from the two sides of the debate. In that pamphlet, I set out details that I will not go into today, but I say to those who are interested and who read the transcript of these proceedings that it is available. Indeed, the Prime Minister has written to me, saying that it is a substantial document and effectively, therefore, it has to be answered. He has said as much to me, and it does have to be answered. I assume that my right hon. Friend the Minister for Europe will do so in due course.

This is an historic turning point for both the country and the Conservative party. The dream of ever-closer union and, indeed, political and economic union has failed, and the root of that trouble is the fantasy world, which has persisted for so many decades, of trying to create economic and political union among so many diverse countries with diverse cultures, diverse economies and diverse democratic traditions.

Only today I witnessed Mr Barroso on the television screens berating everyone in the most dictatorial language. He was saying that everyone had to come together for the sake of saving this project. They themselves are responsible for having created it and they are now attempting to save it, despite the fact that the causes of the present discontent come from the creation of this project in the first place by the very people who are now berating everyone else.

I will go further and refer to two documents that I have just obtained. One is dated 6 December. It is Mr Van Rompuy’s document, entitled “Towards a stronger economic Union”. There is not one word about democracy anywhere in that document—the word “democracy” does not appear. Similarly, in the letter written to the President of the European Council—Mr Van Rompuy, no less—by Mr Sarkozy and Angela Merkel, there is not a single reference to the democratic question. There is not one iota, not one jot of a reference to democracy in either of those documents, yet they are demanding that this failed project be continued with greater—deeper—integration. All the mistakes that have been made in the past are being reinforced in the new arrangement, which clearly will not work. It did not work before and it will not work now. It is a tragedy— I say that—that we are in the current position. I trust that the Prime Minister will address that during the next 48 hours.

This is not some theoretical experiment. It is about the daily lives of the British people and about our democratic traditions and economic performance. The idea that a fiscal union of 17 would be stable is simply and emphatically wrong. It will concentrate and increase the dangers of centralisation and will be fundamentally unstable. Germany will not be able to bail out the other countries, and it is a complete strategic failure for people, including the coalition Government, to think that it can.

Germany of course wants to preserve the euro, because it is doing so well out of it. One has only to consider the foreign direct investment by the Germans in other countries, the extent to which those countries are in effect economic satellites of Germany and the fact that the structural funds—I have the figures from the Library—are so incredibly important in generating investment backed by German contracts in those other countries, from which they then repatriate the profits. This is actually a German economic hegemony. Equally, I do not think that the Germans are inherently hostile about this. I say what I say without any hostile spirit, but I do say that we have to be realistic. We are desperately at risk. The British nation is in peril under these arrangements.

Furthermore, the impact of this economic conglomeration in the hands of one country in particular has led not only, in effect, to the dismissal of two Prime Ministers, whatever their merits or demerits, but to the voting arrangements, which follow from the qualified majority voting system. I am talking about the number of votes that are available to Germany when it wants to pursue a policy, because of its influence and, in effect, its control over the countries in question, which are dependent on it. That is the case not only in the eurozone of 17, but in so many of the other countries, including— I say this without any disrespect for them, because I love these countries—Poland and Denmark. Then of course there are Bulgaria, Romania, the Baltic states, Hungary and so on. The truth is that that is inherently in German national interests. Indeed, we have to look only at what Chancellor Kohl had to say in the 1990s, which I have included in a pamphlet that I wrote, called “It’s the EU, stupid”, to see the political determination behind Germany’s desire to ensure that the euro survives. Angela Merkel is now using that very language in the same context.

I do not blame the Germans. I have said in this Chamber that I recognise the fact that to a great extent they have shown their commercial nous—they have taken advantage of the system to ensure that they get the best out of it. The organisation is not a European union, but effectively a greater Germany.

We, above all other countries in Europe, ought to recognise that we should defend our own interests—not, as I said, in a hostile manner, but in a realistic and down-to-earth manner. We ought to get across the message that there should be, inherent in the proposed arrangements, a fundamental change in our relationship with the European Union. We and, if I may say so, the Prime Minister, have an absolute duty to protect the national interest that he says he wants to protect; to ensure that there is fundamental reform in the European Union, which he called for at the Mansion house the other day, to generate the growth that we need, with our 40% of trade with the Union and to guarantee that we are not drawn into an arrangement by which, through a majority block vote, we are consistently outvoted and become completely and utterly controlled by the system. It just does not make sense, and I believe that the system will not work.

It needs to be pointed out that not only is voting power naturally going to Germany, with its economic investments—it is doing extremely well out of the system—but Germany believes that it can require countries to obey rules. That is a much deeper question, a matter of attitude. We cannot require countries to obey rules just because we prescribe them. That is where I think the whole philosophy and the attitudes in the Eurocracy and in Germany go wrong. As we have heard, the Germans themselves have not obeyed the rules on the stability and growth pact when it suited them not to. An inherent dishonesty lies at the heart of the arrangements: someone disobeys the rules when it suits them, but insists that the rules be obeyed when they can benefit out of those rules. That cannot be right.

Countries are made up of individuals and individual companies, which have their own ideas as to how they should be democratically governed. Those ideas do not by any means fit within the rules prescribed from above or the conditions that are imposed. The Eurocrats, Germany and those who go with it on the matter simply do not understand that the lack of democracy is a fundamental flaw in the entire European project.

[Emma Reynolds]

Is the hon. Gentleman not a little unfair in singling out Germany? Germany is obviously the largest country to have done quite well out of the euro, but other eurozone countries in the group of healthy economies are doing pretty well economically. It is slightly unfair of him to single out Germany.

[Mr Cash]

I do not think it is. If the hon. Lady investigates, as I have, German FDI into the other countries, and then looks at the countries that are growing, she will see that there is a correlation with the amount of money that the Germans have provided. I give them credit for doing so on good investment projects, but some of them have been bad, as in Greece. The growth in some of the countries is buttressed and underpinned by German investment. That is the problem.

[Martin Horwood]

The hon. Gentleman is making an interesting speech. If he was Nicolas Sarkozy—if he can imagine that—exposed as his economy is to Greek debt in particular, what would he do, if he is so critical of the proposed arrangements?

[Mr Cash]

First, there is a strong case for getting out of the euro, because that would enable countries to—[Interruption.] It is described as irrevocable, but I have news for the hon. Member for Cheltenham (Martin Horwood): treaties and laws have been passed for not generations but centuries, and there are more treaties and international relationships that have been reviewed and changed than he might have had hot breakfasts. When those things do not work, there is a good starting point for reviewing them. That is what we are doing now.

[Mr Hollobone]

My hon. Friend thinks that there may well be a move to establish a fiscal union of the 17 eurozone countries. If that is not possible, and if an agreement of the full 17 cannot be achieved, does he think that there could be a move to establish a fiscal union with a smaller number of eurozone countries to let some of the peripheral economies have some kind of orderly default?

[Mr Cash]

I think that the crisis is so great that that suggestion has to be taken on board seriously. I agree with the sentiment that lies behind that suggestion.

[Mr Jenkin]

I follow on the point about foreign direct investment that my hon. Friend made to the hon. Member for Wolverhampton North East (Emma Reynolds). It is interesting that Poland, which one might describe as a pre-in—it is not in the euro, but a pre-in nation state in the European Union—supports the German line. That is precisely because it is such a huge beneficiary of public subsidies arriving through the European Union, largely paid for by the German taxpayer, and because it is massively dependent on FDI. As a result it is effectively already a satellite state of the eurozone.

[Mr Cash]

We must understand that countries need investment. Therefore, in a sense, I am not critical about it. However, I know that the consequences of that are the reasons behind the problems presented to the Prime Minister tonight. There are dilemmas in the matter. I am not just being generous-minded; I understand that there is a triangulation, which is a problem.

I regard the Prime Minister to be, as it were, standing alone at the moment in a quadrangle that is surrounded by four 40 foot-high walls. On one side, he has the Euro-elite—Angela Merkel and Nicolas Sarkozy—and the Eurocracy. Another wall is the fact that he has to reduce the deficit, which he cannot do without growth, and he cannot increase growth without a viable European Union. Another wall is the Conservative party, not only in Parliament but in the constituencies, and the country at large. The final wall—I pay my respects to the hon. Member for Cheltenham—is the coalition and its ideas on the matter, which preclude repatriation and renegotiation—[Interruption.] The hon. Gentleman may say that, but we had it quite clearly stated.

[Martin Horwood]

Will the hon. Gentleman give way?

[Mr Cash]

I am not going to take an intervention, because otherwise we will be here all afternoon—we are going to be anyway. I simply make the point that the leader of the Liberal Democrats has been quite specific in saying that there should not be any repatriation.

Within the electorates of individual countries, decisions can be taken to improve economic performance, develop small and medium-sized businesses and remove burdens on business, but that is not the European method. We may be driven into the formula of the notwithstanding arrangements, which was endorsed by the European Scrutiny Committee report on sovereignty and Parliament, because if the situation is so critical, we may have to override European regulation. However, the European method has locked people, by unanimous decisions, into a European system that cannot be changed, other than by renegotiation, which is almost impossible, or by a notwithstanding arrangement of the kind I have mentioned. Such oppressive regulations and rules are based on theoretical assumptions, as with the Lisbon agenda and the 2020 agenda, which have failed. The result is no growth.

We need to move away from centralisation and integration and back to decision making by Parliaments in the United Kingdom and elsewhere on behalf of the electorates of every country, and also into an association of nation states by co-operating. The other alternative is not to remain a member of the European Union at all. We are reaching that kind of critical point. We may not have got there yet, but we are getting to it.

Effectively, there would have to be a European Free Trade Association-type arrangement, with countries co-operating for free trade, competitiveness and growth, as my hon. Friend the Member for Basildon and Billericay (Mr Baron) so rightly said. However, that arrangement would also have to be based on democratic consent and not exclusively on majority block voting arrangements. That would provide free choice in the marketplace and at the ballot box.

That is the route to solving the problem, not imposing economic prescriptions and rules that have already been broken in the past—invariably—and that will not be observed in the future, because we are dealing with people and not economic or theoretical machines. That is fundamentally the difference between the British approach, which favours freedom of choice, and the eurocratic and—I say this with respect—the Germanic approach, which is rule-based and completely different.

This week’s meeting presents the Prime Minister with a historic moment, given the scale of the crisis, and it is essential that he takes the right path. We cannot have a fiscal union and be within the same treaty; that is a contradiction within itself. It is not a neat Russian doll; it is angular and impossible. Actually, it will not fit. A treaty within a treaty is a house divided against itself and because both are built on sand the result of going down this route will be even greater chaos, whether there are 17 or 27 countries involved. That is the problem and the European Court of Justice simply will not be able to deal with the overarching contradiction that those two competing arrangements provide.

Whether it is the eurozone 17 or the eurozone 27 that we are dealing with, the Prime Minister must recognise that the intentions expressed by the Germans and the French are to pursue a model that is entirely unsuited to the UK and that will create a fundamental change in the relationship between the EU and the UK. As I have said already, countries in the non-eurozone will vote for fiscal union, and that will be disastrous, not only with respect to the single market and how it affects the City of London but with respect to EU directives. I have looked at those directives, but I do not have time to go through all of them now. I simply say that there are literally hundreds, if not thousands, of directives in other areas of the treaty. For example, I have mentioned transport, but other areas include communications and energy—the list is endless. I have the list; in fact, the Library has provided it for me. It shows all those areas that are decided by qualified majority voting and the few areas that are decided by unanimity. The fiscal solidarity within the 17—or within the 27, if that is the way it goes—will use that QMV in all the areas, because that will be the new deal. So we are really in grave peril for those reasons.

I believe that the creation of another treaty within the framework of the existing treaties will deliberately target, for example, the City of London, and that is not just accidental. I remember saying before Mr Nicolas Sarkozy was elected—I say this with some respect to him—that he might prove to be a very dangerous president of France, and from our point of view that has been proved to be the case, much as I think he is looking after French interests. I cannot complain about that; we cannot try to defend our own interests and then say that the French should not look after themselves. The problem is the unreality—the Alice in Wonderland world—in which we are now living, where the French are allowed to renegotiate and throw down the gauntlet to us about what they want, but we are supposed to acquiesce and do nothing much about that. That is why this debate is so important and should be taking place on the Floor of the House.

The critical voting block against the UK will be extremely important. In fact, at the moment it is 213 votes to 130 between the eurozone 17 and ourselves. If it turns out that there is a eurozone 27, there will still be all the economic critical mass and consequently there will still be a voting arrangement against us. For that reason, we are in serious difficulties. Therefore I say that it is an illusion to imagine that that critical mass will not exist.

We also have to repatriate, although I have said repeatedly for months now—if not years—that the fundamental change in the relationship between the UK and the EU is the key question, because when we have got that right we can also address the question of repatriation. As my right hon. Friend the Prime Minister said in 2005 in the Centre for Policy Studies lecture, it is imperative that we repatriate social and employment laws.

Then there is the question of our current account deficit with the EU, which is minus £51 billion. That is up by something of the order of £35 billion or £40 billion in one year alone, and yet our trading surplus with the rest of the world is £15 billion. In other words, there is nothing wrong with our competitiveness; it is just that we cannot be competitive inside the European framework. Therefore we must deal with that issue too.

Effectively, that means that we must re-gear our relationships as a matter of fundamental foreign policy and economic policy. The Foreign Office and the Treasury, through No. 10, must re-gear our relationships with the rest of the world: with the Commonwealth countries, including India; with the United States, of course, which is not part of the Commonwealth and which must be addressed in its own right; and with all the other countries, including Malaysia, South Africa and other African countries, and south-east Asian countries. All those countries offer huge opportunities and many of them operate on the basis of British commercial law and British contracts, adapted indigenously to provide the basis of their legal system and constitutional arrangements. We can be enormously optimistic about the future if we go down that route, not abandoning our trade with the EU, but ensuring that we get a proper balance in our relationship with the EU and putting the emphasis in the right place.

We are told that 3 million jobs are at stake in our trading relationships with the EU. Nobody is suggesting that we would not continue to trade with the EU, but the problem is that the other EU countries have no growth and our trading generates a deficit.

This issue is not just a technical question about Schengen, or otherwise; we must concentrate on the bigger landscape, which is the failure of the European project. It is also about our democracy and the individual electors who voted us into Parliament on the clear understanding that we would protect their interests. That is why a veto is necessary unless a renegotiation of our fundamental relationship with the EU, along the lines that I have described, is achieved, as well as the protection of our democratic interests and the rights of our constituents.

That is also why a referendum is required. The idea being peddled that a referendum is not required—leaving aside the issue of timing—because of the coalition agreement is wholly misleading. The coalition agreement is not law, and even section 4 of the European Union Act 2011, which I sought to remove from the original Bill by an amendment that was rejected by the Government, is not definitive in excluding a referendum where a new treaty or series of legal devices that have been put together has the effect of merely appearing to make provision for member states other than the UK. That is a matter of legal interpretation and we are by no means finished with it; indeed, I have a Bill coming forward in January that has been signed up to by six Chairmen of Select Committees and that will make that clear. But the important thing is that we engage in this debate.

The assumption that is being made at the moment—that we are unable to have a referendum because of section 4 of the 2011 Act—is wholly misleading. The constitutional position for a referendum, let alone the political and economic situation, is not clear-cut by any means, and it cannot override the fundamental principle, as set out in 1975 when a referendum was conducted, because the renegotiations in this instance involve a fundamental change in the overall relationship between the UK and the EU. A referendum is required, quite simply because the current proposals vitally affect the people of the UK. We must have a referendum—it is a matter of principle, honour and trust.

[Mrs Anne Main (in the Chair)]

Order. Before I call Mr David Nuttall to speak, I will point out that there are three other Members who have attended the debate and who would also like to speak. I will be calling for winding-up speeches from about 5.10 pm. I call Mr David Nuttall to speak, and there are three other colleagues who may wish to catch my eye after him.

16:48

[Mr David Nuttall (Bury North) (Con)]

Thank you, Mrs Main, for calling me to speak. It is a pleasure to serve under your chairmanship.

I congratulate my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) on securing this debate this afternoon. I must say, as others have already said, that I find it incredible that, at a time when—as we all know—there is very little Government business going through the House of Commons, time could not be found for this debate to take place in the main Chamber. But we are where we are and we need to deal with the issue of what the Prime Minister should seek to do at this week’s European Council meeting.

At one level, European Union affairs are incredibly complex, with treaties, directives, regulations, protocols, opt-ins and opt-outs. It is all very confusing and legalistic. To be fair, it is very difficult for me, as a Member of the House of Commons with an interest in European matters, to follow the twists and turns of affairs in the European Union, so how much more difficult must it be for voters outside this House in their day-to-day lives? I say that without wanting to sound patronising. Politically, however, the issue is very simple: do we, as a country, want to continue with our present relationship with the European Union? Personally, I say, “No, we don’t,” and I believe that the overwhelming majority of the British people would also answer, “No,” to that question. This weekend’s European Council meeting presents a tremendous opportunity to start to rebalance the competences and powers between the European Union and this country.

Mention has been made of the danger of Europe developing into two groups, but we already have two groups. There are the countries in the eurozone and the ones that have not adopted the euro. We already have, if you like, a two-speed Europe, but I do not like to use that term, because it implies that countries that are going more slowly will sooner or later finish up in the same place as the ones going somewhat faster. It is right, however, to think of a two-tier Europe, with one Europe that is the eurozone, tied up in red tape and regulation, and looking only inwards, at how it can grasp ever more power. That is what we are seeing from the eurozone countries this weekend, and it is what we have already seen in the pre-meeting between France and Germany. They do not see the way forward as having less regulation, less bureaucracy and more freedom for nation states; they want to move faster towards the European Union’s declared aim of ever closer union. They see this as a great means of speeding up the project and bringing everyone together more quickly, so that Brussels will have yet more control over the member states in the eurozone.

We must be honest with our European neighbours. The whole structure of the European Union is being looked at, so there is no better time for us to sit down with our European neighbours and say, “Right. Great. No problem. If you want to get on with ever closer union, that’s fine. You crack on with it but, frankly, we don’t want to go there. We prefer another path, from where we can look to the rest of the world. We want our companies to be able to compete in a global marketplace, not just arguing within Europe and trying to get by with all the rules and regulations that are enforced by Brussels.” There is no better time than now to put our cards on the table and say what we want back. We could all have our own ideas, perhaps a shopping list of individual opt-outs, or the excellent idea presented in his opening speech by my hon. Friend the Member for Harwich and North Essex that what we need, and what I think the vast majority of the British people would expect, to be brought back from this European Council meeting is an opt-out, to the extent that in the future this country ought to be able to say, “Thanks very much for this but, frankly, it’s not suitable for the UK.” That should be retrospective as well as prospective. We should be given back the right to look through the European legislation that has already been enforced and determine what is not suitable for this country.

One would think that this would be quite a simple idea, but because Germany and France are wedded to the ideal of ever closer union enshrined in the founding treaty, the very idea that a member state could start repatriating powers is anathema to those who believe in the European Union project and in ever closer union. It is more than an economic union to them; they want not just a single currency but an economic and political union, with the development of what will become, effectively, the united states of Europe. I believe that the vast majority of the British people do not want that. I entirely respect the honourable position that has been adopted for many years, particularly by our friends in the Liberal Democrat party. That may well be why the party gets only 10% of the vote in opinion polls—I do not know—but it is nevertheless an honourable position. It is a small minority of the British people who think in that way, but it is an honourable position, and that is fine. It is great in a democracy that we have that other position, but I think that the vast majority of the British people want a much looser arrangement of our position within the European Union, and what better time to start than now? This weekend is the time to start renegotiating our position.

I know that other speakers want to get in, but in my final couple of minutes let me deal with the question of a referendum. My hon. Friend the Member for South Northamptonshire (Andrea Leadsom), who is not in her place, said that she thought that the Prime Minister had a strong hand. I agree that he does, because if others wanted us to not use our veto he could say, “Well, okay, I won’t use the veto provided I can have this, this, this and this.” However, how much stronger a hand would our Prime Minister have if this country had held a referendum of the sort we discussed on 24 October? If such a referendum had already been held, the Prime Minister of this country could have gone to Europe and said, “Look, I have the backing of the British people in a referendum.”

There has been much talk this afternoon about whether in view of the fact that we have the European Union Act 2011 it is right that there should be a referendum. I draw Members’ attention to paragraph 48 of the explanatory notes to what was then the European Union Bill:

“a referendum would be required before the UK can approve the extension of any competence of the EU relating to: (i) the coordination of economic and employment policies; or (ii) the EU’s common foreign and security policy.”

If what is suggested by Merkel and Sarkozy is not the co-ordination of economic policy, I do not know what is. So surely that Government explanatory note gives us our right to demand a referendum on the outcome of the negotiations.

16:59

[Steve Baker (Wycombe) (Con)]

It is a pleasure to serve under your chairmanship, Mrs Main. I congratulate my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) on securing this debate.

I confess that I was for a long time a great fan of the European Union. I was very pro-Europe and internationalist, as indeed I still am, but the Lisbon treaty caused me to look closely at the nature of the European Union. I do not have to find my own words for what I discovered the European Union to be, because I can quote, and I think I have done before, what the Prime Minister said in Prague in 2007, according to the BBC:

“It is the last gasp of an outdated ideology, a philosophy that has no place in our new world of freedom, a world which demands that we fight this bureaucratic over-reach and lead Europe into the hope and potential of a new, post-bureaucratic age.”

Hon. Friends might have heard me use the last part of that quotation in my question to the Prime Minister yesterday. I agree fully with what he said in 2007, but have we not been dropped into an awful pickle?

I want to say something about the remorseless logic of customs union to complement what the Chancellor has said about the remorseless logic of monetary union. It seems to me that the founders of the European Union were absolutely certain that they wanted peace and prosperity, so they set up a customs union and a free trade area between nation states. However, the problem was that those nation states were interventionist.

The argument runs as follows: economic intervention requires a territorial monopoly on the use of force. If capital and labour are not to move as a result of such interventionism not meeting its stated aims, that promotes protectionism and capital controls. In turn, that promotes autarchy as nation states struggle to provide everything for themselves in the face of their own barriers, which then promotes expanding borders. In the European Union, we find a customs union with trade barriers around it and a tendency to keep trying to expand. The ultimate outcome of that direction of travel is said to be militarism. I do not claim originality for that argument; it is set out in great detail in a book called “Omnipotent Government: The Rise of the Total State and Total War” by a classical liberal political economist, Ludwig von Mises. He was an interesting man, an Austro-Hungarian Jew who predicted the collapse of the Deutschmark and the rise of political radicalism and then had to flee the Nazis.

I am very interested in that argument. It is the inevitable direction of travel of an interventionist customs union. The crux of the matter is that if the nations of Europe will not abandon their policies of economic interventionism, there are only two directions of travel: either a return to nation states, fragmentation, economic nationalism and all the frictions and difficulties that that will cause, as well as a tendency to promote militarism, which was the worst fear of the founders of the European Union, or, on the other hand, strict centralisation, a territorial monopoly on the use of force and the raising of economic nationalism to the level of the customs union. That, in my view, is what the European Union has done. It is a terrible tragedy. While seeking to defeat economic nationalism, it has raised it to such a level that the continent is suffering what appears to be an imminent currency collapse.

In my view, everything is at stake this weekend. I encourage the Prime Minister to have the courage to believe what he said in 2007 in Prague, which was that the European Union is

“the last gasp of an outdated ideology, a philosophy that has no place in our new world of freedom.”

I hope that the Prime Minister and my right hon. Friend the Minister for Europe (Mr Lidington) can lead Europe into the hope and potential of a post-bureaucratic age.

17:03

[Mark Reckless (Rochester and Strood) (Con)]

I pay tribute to my hon. Friend the Member for Harwich and North Essex (Mr Jenkin), who is not currently in his seat. I first met him 18 years ago as a UK economist for Warburgs, where we argued for Britain staying out of the euro. Warburgs invited my hon. Friend, who was then a new MP, to address a lunch of clients. He explained that we would be better off outside the euro. When a client asked, “But wouldn’t that push up gilt yields, and wouldn’t there be a risk premium for being out of the euro?”, he said, “No. There would be more risk inside the euro. If we stayed out of the euro, in due course, gilt yields would fall below those of German bunds.” That has now happened, and I pay tribute to him for his perspicacity on that issue.

My hon. Friend quoted from a TaxPayers Alliance piece that I found very helpful. It refers to a paper from 2004, which says that we should

“Change our relationship with the EU so that crucial powers are brought back”

and

“take back powers over trade, work and civil rights.”

It states that the British people believe that:

“Giving away power in the hope of influencing the EU has been tried for decades and the EU just gets more power over British life and uses it badly. We should be taking back power, not handing more over.”

Who was the author? My right hon. Friend the Member for Witney (Mr Cameron). Yet, going into the summit this weekend, we now hear that we can ask for only so much back—perhaps not much at all—because our priority must be to save the euro. Then we are told, rather contradictorily, that we cannot ask for too much back, because if we do, they will do it as 17 rather than 27. It cannot be both. In the short term, the only institution that can keep the euro ticking over—I fear it will be no more than that—is the European Central Bank, by printing money and buying Italian and Spanish bonds. Everything else is mood music for German public opinion, but what about our public opinion?

If the euro is to continue, the fundamental issue is competitiveness. Within the euro, the only way to deal with Germany’s overvaluation on competitiveness—it is 30% or 40% better than Italy or Spain, perhaps even more compared with Greece—is to have a significant and sustained period of inflation within Germany. If Germany will not accept that, the only way that peripheral Europe can be priced back into competitiveness with Germany is by a break-up of the euro. I believe that it would be better for that to happen sooner rather than later. It is 18 months since we saw that Greece could not pay its debts, yet it has been patched up, and we now risk throwing good money after bad to keep things going, when it is the euro that is preventing growth in Europe.

I do not dispute that a break-up of the euro will be damaging in the short term, but within two or three years, I believe that growth within Europe will be stronger after a return to national currencies than if we try to keep the euro going. My hon. Friend the Member for Stone (Mr Cash) discussed Germany repatriating its profits. The individual German company can repatriate profits, but Germany as a whole cannot, because Germany has used the euro as the latest manifestation of a system—it started with Bretton Woods, then the snake, then the exchange rate mechanism—to keep its currency artificially low, so that it exports vastly more than it imports. As a result, Germany must recycle its assets into sub-prime US mortgages or Greek Government debt. Only after Germany stops depressing its currency through that system will we come back into balance, and countries such as Greece, Portugal, Spain and Italy will be able once more to compete with Germany. We should focus on that during the summit.

The Prime Minister is going to the summit, and we will see what powers, if any, he seeks to bring back, but it is clear that there has been a fundamental change in the UK-EU relationship. Page 63 of the Liberal Democrat manifesto said that in such circumstances, there should be a referendum of the British people to decide whether we should stay in on those terms or whether, as I would like, we should again be an independent country trading with Europe but governing ourselves.

[Mrs Anne Main (in the Chair)]

I have a correction. I will call the Opposition Front-Bench spokesperson at 5.12 pm.

17:07

[Mr Philip Hollobone (Kettering) (Con)]

I believe that my constituents in Kettering see this weekend’s summit as a once-in-a-lifetime opportunity to renegotiate Britain’s relationship with the European Union. I also believe that they want me to state that they want their say in the future of our country’s relationship with the European Union through a referendum at the ballot box. It would be a huge credit to the Conservative party if we were to go to the country on any deal that the Prime Minister negotiates this weekend. It would expose the myths that we are being told by the Liberal Democrats about how in touch they are with popular opinion and would reveal once again the flaws in their manifesto. They seem increasingly to find ways to deny people a referendum on issues on which they promised them a vote.

My constituents in Kettering want us to be part of a common market. They want a free trade relationship with Europe and, increasingly, with the rest of the world, but the EU’s share of world output is falling year by year. It was 30% of world trade in 1980, and it will be 15% by 2020. Periodically, we all cut ourselves up about how important Europe is to this country, but we are increasingly tying ourselves to an economic bloc that is going south, not north. The future of our great trading nation lies with the emerging economies such as Brazil, India and China, many of which are Commonwealth countries with which we have deep and close relationships that could be deepened ever further.

On what the Prime Minister should be demanding back from the EU this weekend, we could not have a debate on the European Union chaired by you, Mrs Main, without mentioning the habitual residency test. The Secretary of State for Work and Pensions has said that the European Union is trying to overturn the United Kingdom’s rules on benefits to benefit tourists. This country refuses to give them benefits if they do not pass the habitual residency test, yet the European institutions are trying to overturn that regulation at a cost, according to the Government’s own figures, of between £2.5 billion and £5 billion every year. That is one thing to demand back from Europe.

My constituents would also like the Prime Minister to demand back control over our borders once again, because they are fed up with the mass immigration from the European Union on to our shores. We want our fishing grounds back and our agriculture policy back. Above all, we do not want to spend more and more each year on our membership subscription. In the last five years of the previous Labour Government, the membership subscription was some £19 billion. At the end of this coalition Government’s five years—should they last that long—it will be £41 billion. The cost of our membership has doubled as the red tape coming out of Brussels increasingly strangles the ability of British business to create the wealth that pays for our subscription in the first place.

This is a wonderful opportunity for our country. I hope that the Prime Minister has the courage to seize this golden opportunity to restate Britain’s relationship with the European Union and to create a brighter relationship not only for the EU but for Britain outside it.

17:11

[Emma Reynolds (Wolverhampton North East) (Lab)]

It is a pleasure to serve under your chairmanship, Mrs Main, and I congratulate the hon. Member for Harwich and North Essex (Mr Jenkin). We might not agree on all the detail in relation to this debate, but I agree with him that the seriousness of the situation calls for time in this Chamber to discuss the European summit. The pre-summit dinner is only a couple of hours away, but it would also have been useful if the Prime Minister had been invited to last night’s dinner organised by the centre-right European People’s party, at which Chancellor Merkel, President Sarkozy, President Barroso and many other centre-right leaders—unfortunately, most European Union countries have centre-right Governments—were present. Unlike his centre-right equivalents, however, the Prime Minister was not invited, which is a shame.

[Mr Jenkin]

May I point out that if we had a Labour Prime Minister, he would not have been invited either?

[Emma Reynolds]

The hon. Gentleman makes a valid point. When we were in government in 1999, 11 out of 15 Governments were on the centre-left and we attended such meetings, which proved very useful indeed.

I respectfully beg to differ with those hon. Members who have said that the Prime Minister has a strong hand in the negotiations. Last Friday, the Prime Minister was relegated to a quick sandwich lunch with President Sarkozy in Paris, without the inclusion of even a press conference in the programme. The French press hardly noticed that he was there. Given that we are one of the largest economies in the European Union and used to be at the heart of its decision-making, it is incredible just how isolated this Government have made the UK. Today’s New York Times leads with an article that says that the UK is merely a “bystander” at this European Union summit. That is not in the national interest.

The past few days have served to remind us how the Conservative party likes to debate the European Union and of—perhaps this is a point of nostalgia for some—the long, tortuous and, in some cases, destructive history of the division in the Conservative party on the EU. It is worth remembering the context of the Prime Minister’s current position and the labyrinthine trajectory he took to get there. In his bid to secure his party’s leadership while in opposition, he promised to withdraw his MEPs from the centre-right European People’s party, but they still sit in the European Parliament with the same group, which the Deputy Prime Minister has called

“nutters, anti-Semites, people who deny climate change exists and homophobes”.

After becoming the then leader of the Opposition, the Prime Minister told his party to stop “banging on about Europe”, because he hoped that the issue could be put to one side and ignored. How wrong he was.

I say to this Government that, for a year, they ignored the impending crisis in the eurozone. It was only recently that they stopped being asleep at the wheel and woke up to the seriousness of the situation. Six weeks ago, we saw the unedifying spectacle of nearly half of Conservative Back Benchers defying the Prime Minister’s three-line Whip and voting for a referendum on our membership of the European Union. During that same debate six weeks ago, the Prime Minister said that he wanted to repatriate powers from the European Union. He reiterated that demand last month at the lord mayor’s banquet and declared himself a sceptic who wanted a European Union that was a network, not a bloc, while in the same breath extolling the benefits of our membership and demanding a say at the top table.

[Mr Baron]

It is rich for the hon. Lady to criticise the Prime Minister, because when her party was in government, it not only sacrificed the rebate that had been negotiated, but oversaw the transfer of swathes of power to Brussels. The list of measures that she is highlighting runs very shallow with those who remember when her party was in government.

[Emma Reynolds]

I say to the hon. Gentleman that, when my party was in government, we were not isolated in the European Union. The previous two Prime Ministers had a good relationship with both the French President and the German Chancellor, and such a relationship is very important to our national interest.

[Martin Horwood]

Will the hon. Lady therefore congratulate the Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for Kingston and Surbiton (Mr Davey) on his co-operative approach to lifting onerous accounting rules for the smallest businesses? Her Government did not manage to achieve that co-operative approach.

[Emma Reynolds]

I agree that a co-operative approach is needed and that we need to constructively engage with our European partners. When you go to a European summit, you get what you want not by banging on the table, but by the power of your ideas and the strength of your alliances. [Interruption.] Government Members may laugh, but my right hon. Friends the Members for Kirkcaldy and Cowdenbeath (Mr Brown) and for Edinburgh South West (Mr Darling) showed at the London G20 summit in 2009 just what you can achieve by the power of your ideas and the strength of your alliances.

[Mr Jenkin]

rose—

[Mrs Anne Main (in the Chair)]

Order. Before the hon. Gentleman speaks, may I ask the hon. Lady to address the debate through the Chair? I have never been to an EU summit and have certainly never given away any powers.

[Mr Jenkin]

I remind the hon. Lady that, after the collapse of the European constitution, Tony Blair went to the European Parliament and said that the trumpets were outside the walls of Jericho and asked whether anybody was listening. Nobody was listening and we got the Lisbon treaty instead. There is no evidence that any Labour Prime Minister had any influence over the general direction of the European Union any more than we do now.

[Emma Reynolds]

I disagree entirely. When our party was in government, we were at the centre of European decision-making, and the truth is that we are not any more.

Six weeks ago the Prime Minister demanded repatriation of powers, yet yesterday, in a 1,000-word article in The Times, in which he set out his position for the European summit, he did not mention repatriation once. We agree that the priority should be given to providing a lasting solution to the eurozone crisis, because we think it is in the national interest, but we also say that Britain should have a strong voice in these negotiations. Unfortunately, because the Prime Minister has tried to face two ways on the issue—on the one hand placating his Eurosceptic Back Benchers and some members of his Cabinet, and, on the other, trying to have a realistic negotiating position with our European partners—the risk is that he will not deliver on either of those objectives. Whereas many Conservative Back Benchers demand repatriation, a split has emerged, not only in the coalition, but in the Conservative party, over the past few days.

[Kate Hoey]

Will my hon. Friend give way?

[Emma Reynolds]

I will not, because I do not have much time. The Deputy Prime Minister has said that attempting repatriation would be economic suicide, and the Mayor of London and two Cabinet members—the Secretaries of State for Work and Pensions and for Northern Ireland—say that the treaty change would inevitably lead to a referendum, whereas the rest of the Government seem to be saying something quite different.

The fact that the Prime Minister is leading a divided party while negotiating on Europe is very much weakening his hand. By facing two ways, the Prime Minister’s position and the negotiating position of our Government are both confused and confusing. It is no wonder that our European partners are not entirely sure where the Prime Minister stands. It is clearly not in our national interest to have that weak voice and to stand on the sidelines. Splendid isolation is really not that splendid. The fact that we are in the slow lane of a two-speed Europe might chime well to the Eurosceptic ear, but, essentially, it could mean that other member states will take decisions that affect us without our being at the table.

I say to the hon. Member for Bury North (Mr Nuttall) that it is wrong to assume that eurozone members all agree on which direction they want to take regarding better economic co-ordination, because the French Gaullois tradition is an intergovernmental one that is very hostile and suspicious of supranational institutions. There are disagreements within the eurozone countries. We should not just assume that France and Germany agree on these issues.

If the eurozone crisis continues to deepen, it will have serious implications for jobs, businesses and banks in the UK. Our economy is closely entwined with the other 26 members of the European Union, and more than half our trade goes to those countries. Our banks are also extensively linked and exposed to eurozone banks, so it is clearly in the national interest for a solution to be found at the summit. Labour Members want the Government to push for a greater and more decisive role for the European Central Bank and a credible crisis fund with, of course, built-in conditionality. The so-called six-pack package goes a long way to creating credible rules and procedures to enforce those rules, but it is clear that a solution must also be found to tackle the balance of payments and trade imbalances, which several hon. Members have mentioned, between the different eurozone member states. It is also very important to enhance the competitiveness of the weaker economies.

In winding up, I would like quickly to ask the Minister a couple of questions. Why did the Prime Minister promise repatriation of powers six weeks ago and then suddenly drop those demands yesterday? What resources in the Foreign and Commonwealth Office were given to working through options on repatriation, or was that always a matter of rhetoric rather than something really considered in the corridors of King Charles street? Why have the Government been so complacent about the emergence of a two-speed or multi-speed Europe, and what specific reassurances are the Government asking for with regard to the City and the single market? Are the Government seeking, for example, an emergency brake to be extended to the area of financial services? Finally, are the Government hopeful of a fairly rapid treaty change, and what are the risks to the UK and the rest of the EU of a prolonged process of treaty change and ratification?

In conclusion, we want to see the eurozone succeed, because it is clearly in the national interest that a solution is reached. It is not in the national interest to engage in “I told you so” arguments or schadenfreude, nor is it in the national interest for the governing party and the coalition to be so divided on this issue. Our European partners are left scratching their heads about what the Government’s position really is. The Prime Minister should never have promised repatriation of powers, if it was never his intention to deliver on that promise. His promise has entrenched and deepened divisions in his party, as we saw today and yesterday at Prime Minister’s questions.

That is no way to negotiate with our European partners. Our country demands and deserves better leadership, and only then will the Government be in a position to effectively pursue the national interest and start being part of the solution rather than part of the problem. Division, isolation and weakness are, in fact, a betrayal of the national interest. My concern is that the Prime Minister will not be able to deliver on even the modest demands that he has set out because of his isolation.

17:24

[The Minister for Europe (Mr David Lidington)]

I congratulate my hon. Friend the Member for Harwich and North Essex (Mr Jenkin) on securing the debate. While the debate was going on, I was thinking that he and I have known each other for more than 30 years. Although it is fair to say that we have not always managed to agree on political subjects, I have never had any doubt whatsoever about his integrity or his patriotism. I pay tribute to him for the way he put his case today.

We are, indeed, in the rather unusual position of debating a meeting that is about to start and that, to judge from what President Van Rompuy said on Monday, may well go on for many hours after dinner tonight and into tomorrow morning. I therefore need to preface anything I say with the caveat that events may overtake us. I will also be quite straight with hon. Members and disappoint the hon. Member for Wolverhampton North East (Emma Reynolds) by saying that I am not going to go into detail about the Prime Minister’s negotiating position. The only people who would benefit—indeed, who would be delighted—by a full disclosure of the Prime Minister’s negotiating tactics would be the Governments of other countries represented around the table, who might not necessarily share identical negotiating objectives.

I want to try to respond at least to the broad questions raised during this debate. I certainly agree with everybody who has said that the British Government have a duty to be vigilant and to defend vigorously the national interests of the British people. As the Prime Minister made very clear yesterday, we will support the objective of securing fiscal discipline in the eurozone, but not at the expense of either our industries or our independence. The crisis in the eurozone is forcing the European Union and the eurozone 17 in particular to confront fundamental choices. It matters hugely to the United Kingdom that the eurozone is successful in sorting out its problems.

One point on which I agreed with the hon. Member for Wolverhampton North East was the interconnection between this country’s economy and the economies around the wider Europe. Many of the statistics are well known. The eurozone accounts for roughly 40% of United Kingdom trade, and its stability matters globally. Around 15% of United States trade is with the eurozone and one can measure the concern of the United States Government by the fact that the Treasury Secretary, Mr Geithner, was dispatched on rapid visits to Paris and Berlin earlier this week.

The hon. Member for Luton North (Kelvin Hopkins) talked about wanting an orderly deconstruction of the eurozone, which was far too sanguine. He slightly skated over the fact that in every conversation I have had with Ministers of any of the 17 Governments of the eurozone, they have said that they are committed to keeping the eurozone project going. In addition, as far as one can tell from opinion research, the populations of those countries still consider the euro to be an essential part of the national interest of their country. Hon. Members may think that those views are misplaced, but they are the views of the countries that have chosen to join the euro, and, ultimately, we have to respect their sovereign decision.

What I am clear about is that the instability in the eurozone is already having what the Chancellor has described as a “chilling effect” on the United Kingdom’s economy, and a collapse of the eurozone or a prolonged recession in the eurozone as a result of financial instability persisting will be thoroughly bad news for jobs and for hopes of economic growth in our country. It is not only important but urgent to try to sort out the problems of the eurozone. As a number of hon. Members have said, many of us argued from the start that there were flaws in the way that the euro had been designed and that it seemed illogical to have a currency union and a single monetary policy and interest rate without some common agreements and structures in place to govern wider economic and, in particular, fiscal policy.

We can argue that those problems should have been tackled at the start and that the warning signals should have been read when countries breached the stability and growth pact and no action was taken, but we are where we are. I certainly believe that there is a sense of real urgency and of peril among serious-minded leaders of other eurozone countries. They are now speaking in terms of an economic catastrophe that will spread much more widely than the single currency area if this instability is not resolved, and resolved swiftly.

[Mr Baron]

My right hon. Friend is of course right. In the history of the world, there has not been a monetary union that has worked that has not also had to include fiscal union. It is fundamentally flawed. What is more important now is not history but the future. I suggest to my right hon. Friend that perhaps the one reason eurozone leaders are so passionate about the euro is that it is part of a political project for political union, and that they are therefore overegging the economic consequences. Where history can also help us is to remind us that since 1945, as I have highlighted—there has been no riposte from the Minister on this point—we have had 80 instances in which countries have left currency unions. The vast majority have benefited in growth terms from having left a currency union. I suggest to the Minister that he should think carefully. Perhaps the motive of these eurozone leaders is that they see the euro as a weapon that is crucial to political union.

[Mr Lidington]

My hon. Friend makes a perfectly sensible point about the fact that other countries have departed currency unions since the second world war. It is fair to say that we have not had such a break-up of a currency union on this kind of scale, with economies that are so closely integrated, and in an age when information and capital can be moved rapidly, not just in national jurisdictions but globally, at the click of a computer mouse. Studies that I have seen say that it would be much, much more damaging and risky for the eurozone to break up, particularly if it broke up chaotically, than it was for some of those other currency separations, such as those of the Czech Republic and Slovakia. Incidentally, Slovakia, having broken with the Czech Republic, then decided to enter the eurozone and has engaged in some challenging austerity and competitiveness measures in order to try to make a success of that commitment.

Where I would agree with my hon. Friend is that this has been seen, by those who took part, as a political project as well as an economic project. However, to an extent that we sometimes do not appreciate in this country, those political ambitions have a much greater resonance among the wider electorates in many countries on the continent of Europe than they do here. That is due to all kinds of historical reasons with which we are fairly familiar. I want to emphasise that the prime objective of the summit ought to be to sort out the issues that remain unresolved from the eurozone meetings of 21 July and 26 October. Whether we talk about the European financial stability facility, bank recapitalisation or the detail of the Greek write-down, there is detail that has yet to be finalised, and that needs to be addressed rapidly. So, too, does the need for competitiveness, not only in the peripheral eurozone economies but in the global context of the European Union as a whole. It needs to be embraced as a priority by every single one of the member states and the European institutions. If I have time, I will come on to that. There is some evidence that that challenge is starting to be recognised and addressed.

I accept too—I will make this point very briefly—that if eurozone countries choose to push forward with greater economic integration, there will be a democratic challenge as well. How are economic policies to be made democratically accountable? I accept that that is a challenge for those countries. It is clearly for them, as independent sovereign countries, to decide how they individually address that.

Many hon. Members raised the issue of possible treaty change, and the safeguards that the United Kingdom would require should the eurozone follow that path. Let me set out the options in broad terms. One way to introduce stronger rules for the eurozone, which of course would not apply to the UK, would be a change in the treaty governing all 27 members of the European Union. That would be the most comprehensive way to provide tough sanctions to ensure that eurozone countries stick to their own rules on debt. A second option would be to allow the 17 countries of the eurozone to create a separate intergovernmental treaty of their own. That has happened before, with the Schengen agreement on open borders and with the European stability mechanism. The 17 are free to do that again. The likelihood, however, is that the signatories to such a treaty would want to draw on the EU institutions that belong to all 27 member states to monitor and enforce compliance with any new rules on tighter budget discipline. In both instances, we would have the power of veto. Treaty change at 27 requires unanimity and, while the content of an intergovernmental treaty at 17 is a matter for the 17 signatories, it cannot cut across the provisions of the existing EU treaties, nor can it seek to use the EU institutions without the specific agreement of all the EU 27.

[Mr Cash]

My right hon. Friend, I am sure, recognises the extreme danger of creating a treaty within a treaty. I am sure he realises that that would be a house divided against itself, and catastrophic for our democratic system.

[Mr Lidington]

As I said earlier, this is not without precedent. I am not saying that this will happen, but it is an option that has been floated quite openly by a number of European leaders as a possible way forward. Just as there is a negotiation within the eurozone about the measures and mechanisms to enforce discipline, so there is a negotiation with us and fellow non-euro countries. In the course of these negotiations, whichever option is followed we will make sure that our interests are protected. Of course, there is another option, which is to use the existing frameworks and treaties. That option is still on the table.

In the debate, there has been extensive discussion of the repatriation of powers and a referendum. We need to remind ourselves that this is the first Government in British history to have introduced a legislative guarantee of a referendum. The European Union Act 2011 ensures that there is now a legal requirement on any Government to hold a referendum before any agreement on treaty change that transfers competence or powers from the UK to the EU. I have never pretended that the Act is a panacea. It does not address the issue of repatriation of powers and that was not its purpose. It is a guarantee.

There has been some suggestion from hon. Members that the UK should hold a referendum on any changes the eurozone countries may choose to make. I want to reiterate the point the Prime Minister has made on this issue. What the eurozone countries may or may not do is have arrangements between themselves that pool some of their sovereignty. To say that we have to have a referendum in Britain about something that other countries are going ahead with anyway would not only be a rather odd approach for us to take, but it would probably mean that those countries would choose to go ahead in any case but using purely intergovernmental means, however messy and unsatisfactory from their point of view such an alternative might be. That may well yet happen, but holding a referendum on such a treaty would not bring back a single power.

Personally, I could draw up a list of powers—we had the list in the Conservative manifesto at the previous election—that I think are better decided nationally than by the EU. However, we have to be ruthlessly focused on what is most important to our national interest and, at this time, in particular to our national economy. That is why our priority in the negotiations is safeguards to keep the single market fair and open for our most crucial industries, including financial services, to which my hon. Friend the Member for South Northamptonshire (Andrea Leadsom) made reference.

[Kate Hoey]

Is the right hon. Gentleman saying that none of the options that he has mentioned and that might happen is making any real change to our relationship with the European Union? Surely the changes are fundamental and require the will and support of the British people in a referendum.

[Mr Lidington]

No. We do not know the shape, let alone the detail, of any agreement that might be reached over the next 24 hours or longer. The risk alluded to by a number of my hon. Friends, which perhaps lies behind the hon. Lady’s intervention, is that of caucusing. The risk is that the greater economic integration of the 17, and of more countries over time as other member states join the euro, as is still their intention, will lead to caucusing on single market measures, so that the UK would in effect be presented with a “take it or leave it” option. That is certainly a theoretical risk and I do not want to pretend otherwise. The political reality, however, is, first, that that is not how the eurozone countries have operated up till now. We were given similar warnings when the United Kingdom took the decision to stay outside the euro when it was created, but those dire warnings have not been justified by the events of the years since.

Secondly, when I talk to Ministers from the other 26 member states, I find that neither the eurozone 17 nor the euro-out 10 are cohesive or monolithic blocs. Talking to Dutch, German—in particular—Finnish, Austrian or Irish Ministers, one finds that they all very much want the United Kingdom, with its championship of free and open markets and an outward-looking European Union, to be centrally involved in taking decisions. There is not that drive towards a caucus that a number of my hon. Friends fear.

[Mark Reckless]

Will the Minister give way?

[Mr Lidington]

I will not, I am sorry. I want to leave some time to my hon. Friend the Member for Harwich and North Essex, so I must conclude my remarks shortly.

I will write to those hon. Friends who have mentioned particular subjects, such as my hon. Friend the Member for Cheltenham (Martin Horwood) who spoke about energy. I assure my hon. Friend the Member for South Northamptonshire that we completely recognise the importance of financial services. A thriving City of London is an asset not only to the United Kingdom but to the European Union as a whole. We should go out and sell that case loudly and confidently. We have made it clear that, if a financial transactions tax introduced at EU level were to cost jobs and growth—that is on the basis of the Commission’s own impact assessment—we would veto it. If others wanted to go ahead, foolishly, on the basis of an enhanced co-operation measure, that would be a matter for them.

It is clear that the next few days will be important for Europe. We head into the summit with a clear objective. Yes, we support the eurozone in sorting out its problems, but we will not sign up to fiscal discipline in the eurozone without safeguards and certainly not at the expense of our industries or our independence.

17:43

[Mr Jenkin]

I am most grateful, Mrs Main, for the opportunity to make a few remarks in the last couple of minutes available. My right hon. Friend the Minister for Europe is extremely generous, as always, in letting me reciprocate. No one doubts the sincerity of his commitment to doing the right thing for his country as well as for the party and the coalition. I also thank my right hon. Friend the Member for New Forest West (Mr Swayne), who has patiently sat through the debate on behalf of the Prime Minister, whose gesture we appreciate.

May I be brutally frank? I hear the Government still in denial about the significance of what will happen. We will have a treaty of the 27 that will create a massive shift in the focus of power to the 17. The EU institutions will be concentrating on that and we will become peripheral, so we need a fundamental change in our relationship with the European Union to compensate for that change, not least because our existing terms of membership are already very damaging to this country’s competitiveness, growth and job creation. At the summit, the United Kingdom should seek an agreement in principle—so that it does not hold the summit up—that renegotiation has to be on the table. If the Government cannot even obtain that at such a moment, they are not building a position from which to negotiate in future.

As for a referendum guarantee that does not actually guarantee a referendum, I have made my point about that Act of Parliament: it is not sufficient because it does not address our circumstances. The treaty change is without doubt significant and, if the Government want the British people to consent to it, they must inevitably concede a referendum or it will never be ratified.

17:45

Sitting adjourned without Question put (Standing Order No. 10(11)).