European Union (Approval of Treaty Amendment Decision) Bill [Lords]

Douglas Alexander Excerpts

Monday 3rd September 2012 Commons Chamber

[Mr Douglas Alexander (Paisley and Renfrewshire South) (Lab)]

As the Foreign Secretary has set out, the context for this debate is the continuing crisis in the eurozone: the troika has yet to decide whether Greece has met its bail-out commitments; Spain appears to be on the brink of making a formal request for assistance; forecasters predict that the Netherlands, Slovakia, Slovenia and Belgium will all miss the European Union deficit target next year; and there are serious doubts about whether Ireland and Portugal will be able to comply fully, with certainty, with the existing terms of their EU bail-out programmes. The need for decisive action by the eurozone is beyond doubt, and we believe that it is overwhelmingly in the British national interest that such action is taken.

Today’s debate, as we have already heard, relates specifically to the content of the European Union (Approval of Treaty Amendment Decision) Bill. As the Foreign Secretary has set out, member states agreed, following a meeting of the European Council in March 2011, to the amendment of article 136 of the treaty on the functioning of the European Union, specifically to enable the creation of a permanent eurozone-only bail-out fund, the European stability mechanism.

We should recognise this as a major institutional development for the EU. It sets up an International Monetary Fund-type body for the eurozone on a permanent basis, replacing the separate intergovernmental European financial stability facility, which was agreed when the Greek emergency first broke. As this is a treaty within the EU-27 framework, any amendments or changes must be approved by the established procedures for treaty ratification in each and every member state, even though the ESM will apply only to those member states that are members of the euro. It is, therefore, unlike the fiscal compact, which, despite the Prime Minister’s so-called veto last December, Britain was unable to block, and over which this Parliament has had no say.

Indeed, the fiscal compact negotiated outside the EU framework by 25 members of the EU, without Britain or the Czech Republic in the room, establishes a completely new principle in European treaty ratification. It will enter into force when it is ratified by 12 of the 17 eurozone member states—a principle that, in our view, could work to Britain’s disadvantage in other contexts, and which is a direct consequence of not being in the room when such decisions are reached. The Bill, however, will lead to enabling legislation giving parliamentary approval to the European Council decision to establish a permanent eurozone-only bail-out fund.

Let me make clear the Labour party’s position on the Bill. We are legislating today not on the substance of the ESM, but only on the enabling treaty change to allow it to be set up. Labour recognises the need for that enabling measure, so we will support the Bill. A more stable eurozone is important for the UK’s long-term growth and prosperity. Indeed, as the eurozone accounts for more than 40% of our external trade, prospects for business investment and export growth depend on it.

[Mr Cash]

On the claimed virtues of the single market, does the shadow Foreign Secretary accept that we have in fact run up the most monumental deficit with the other 26 member states of the EU, to an extent that it is now damaging our economy and thereby preventing this country from achieving growth?

[Mr Alexander]

I can assure the hon. Gentleman that if I were to draw up a list of what is damaging the economy of the United Kingdom at the moment, many items would stand above a recognition that the single market has provided British businesses with European markets constituting 500 million consumers. It would be perverse logic to suggest, at a time when we are struggling to secure growth in the British economy, that it would be to the advantage of British exporters or British businesses more generally to shrink the UK’s home single market from 500 million consumers to just 60 million.

A mechanism with sufficient firepower to restructure and recapitalise weak banks, and to bail out Governments who can temporarily no longer access the bond markets to finance their borrowing and debt, is a necessary part of bringing stability back to the eurozone, and a permanent bail-out fund is one key part of making that happen. However, the burden of responsibility for delivering that growth and prosperity must be taken by eurozone members themselves. In the establishment of the ESM, the European Council is making it clear that ultimate responsibility for ensuring the overall stability of the euro area rests with eurozone members. It will be a fund by the eurozone for the eurozone. That is clearly in the UK’s national interest, and we will not vote against a Bill that will allow the ESM to be established.

[Mr Jenkin]

Why, then, was the previous Government’s parting act to agree that the UK should be liable under the stability mechanism that they approved?

[Mr Alexander]

The hon. Gentleman is right to recognise the timing of that in the final days of our time in office, but the other significant event that was happening then was the real prospect of the eurozone collapsing completely. He might welcome that, but the Opposition certainly would not. That was why the Chancellor of the Exchequer of the outgoing Government made genuine efforts to consult the potential incoming Finance Minister, who is now the Chancellor of the Exchequer. That matter is discussed in the explanatory memorandum on European Union legislation dated 15 July, in which the then Economic Secretary to the Treasury, now the Transport Secretary, stated:

“The Government regrets that the Scrutiny Committees did not have time to consider this document before it was agreed at Council. It should be noted that whilst agreement on behalf of the UK was given by the previous administration, cross-party consensus had been gained.”

If the hon. Gentleman is concerned that the outgoing Chancellor reached the wrong decision, he might like to put that point directly to the current Chancellor.

Let me be absolutely clear that our support for the Bill does not equate to unqualified confidence in the ESM or in the current package of eurozone policies of which it forms but one part. We have concerns about both the restrictive terms of the fiscal compact that eurozone members have negotiated to establish the ESM and the manner in which it is currently envisaged that the ESM will be operationalised. The Opposition are certainly under no illusion that the ESM in itself will resolve the eurozone crisis. Much more will be required to do so than is included in this two-clause enabling Bill. The establishment of the ESM represents but one part of a broader package of measures and reforms that members of the euro must adopt to deliver stability successfully and bring greater prosperity to the eurozone in future.

[Mr MacShane]

I am following my right hon. Friend’s speech with considerable interest and agreement, but should we not change the tone slightly? We hear, “The eurozone must adopt this”, “They’re at fault”, “The pound zone is perfect.” I am going to Poland tomorrow for a big eastern European economic conference, and there is not the same patronising indifference to the eurozone there. There is not a view that the zloty zone is perfect. We are all in this together, and the trouble with the Government’s approach is that it sells the public the lie that there is a thing called the eurozone out there, but it is a far-away economic region of which we know not very much and in which we are not very interested.

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[Mr Alexander]

I hope I can give my right hon. Friend the assurances that he seeks. The Opposition are far from indifferent about the future of the eurozone, not least for the reason that I have already explained—many British jobs and exports rely on the eurozone coming through the current crisis. His point highlights one of the delusions that is apparent among at least a few Members, which is that if Britain were to leave the European Union, the concerns that currently afflict the eurozone would somehow become remote from the interests of British jobs and workers. The eurozone will continue to be of absolutely fundamental interest to British manufacturers, exporters and jobs. The Prime Minister arrived at a recent summit lecturing the Germans and left being shouted at by the French, and that certainly does not seem to me to be how to secure the type of agreement that I sense lies behind my right hon. Friend’s question, which we want to see in the best interests of stability in the eurozone.

[Kelvin Hopkins]

Is it not the case that countries such as Poland and Britain have the great advantage that they can choose a parity for their currency that is appropriate to their own economies, rather than being forced to adopt a wholly inappropriate parity through the eurozone like Greece, Ireland and a number of other countries? Does my right hon. Friend agree that if Britain had joined the euro with the parity that existed at that time, we would now have a wrecked economy?

[Mr Alexander]

It is hardly a revelation that I strongly supported the five economic tests back in the years immediately following 1997, whether in relation to the convergence criteria or more broadly. In that sense, the Opposition’s position has not changed. It was an intriguing interpretation of history by the Foreign Secretary to attribute to his own conduct out of office so much credit for what the Labour Government did in office in keeping Britain outside the euro. However, he is right to recognise that there is broad consensus, which extends even to the hon. Member for Cheltenham (Martin Horwood), that there is no immediate prospect of British entry to the euro, for some of the reasons that my hon. Friend describes.

Let me be clear about some of the Opposition’s specific concerns, in a spirit of genuine concern about and mutual interest in the eurozone. First, we believe that the eurozone firewall needs to be bigger in scale and more flexible in operation than the ESM alone currently allows. Although the ESM is a key part of that broader firewall, an effective European Central Bank should also be used to enhance, and contribute to the establishment of, an effective firewall. Since the House last debated the matter, the ECB has announced its intention to begin buying bonds if member states comply with the relevant conditions regarding the management of their fiscal budgets. That is a welcome development, and we look forward to the ECB president Mario Draghi’s announcement this Thursday of how that new programme will work. The ECB must now deliver on its promise if it is to function properly as a lender of last resort and provide the necessary firepower to support the eurozone economies effectively under bond market pressure.

[Mr Cash]

Will the right hon. Gentleman give way?

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[Mr Alexander]

I am keen to make a little progress, but I will endeavour to give way to the hon. Gentleman in due course.

Secondly, stability in the banking system is vital, and where that requires action it should take place swiftly and with urgency. That is why we welcome the recent announcements about the ESM, which represent steps towards recapitalising weak eurozone banks. If responsibility for recapitalising national banks rests with national Governments, the problems of countries such as Spain risk getting worse, because state support for the banks will further worsen those countries’ fiscal outlook. We therefore agree that within the eurozone it makes sense for the ESM to be able to play a leading role in bank restructuring and recapitalisation. Although there is agreement in principle about that, it is vital that the eurozone begins taking action on it more urgently than it has to date. We cannot afford to wait for full agreement on a banking union before the process of recapitalising Europe’s banks begins. It needs to take place over the coming months.

The failure of eurozone members to accept fully the logic of a single currency must be addressed, and alongside a banking union some form of debt mutualisation may have to be considered. Simply put, creditor countries must be willing to shore up debtor countries in the short term if they are to guarantee their own stability in the long run. That may be a bitter pill for countries such as Germany to swallow, but it is the only cure for the eurozone as a whole.

[Mr Cash]

On the role of the ECB, Mr Draghi and the proposals on bail-outs, does the right hon. Gentleman agree with the president of the Bundesbank, Mr Weidmann, or with Angela Merkel?

[Mr Alexander]

I would not wish to intrude on the constitutional differences between the Chancellor of Germany and the governor of the Bundesbank. President Draghi bears a heavy burden of responsibility on Thursday to add detail to the terms of the guarantees that he was judged to have offered on the basis of his rhetoric at the previous press conference in the summer.

There is clearly a divide between those who, despite the economic facts, remain wedded throughout Europe to an austerity-only approach and those who recognise the need for a growth-led recovery alongside genuine efforts at medium-term deficit reduction. It is regrettable that our Government appear to be firmly on the wrong side of the divide. However, I welcome the fact that, at the last EU summit, a useful but modest growth package was agreed, although I regret that the Prime Minister of the United Kingdom remained bound to the last to the old Merkozy-style approach.

As part of the new focus on growth across Europe, we support a significant increase in the capital of the European Investment Bank and the concept of infrastructure bonds to finance major capital investment projects. The European Union must also learn to use existing resources better without spending more. A genuine plan for growth must start with reform of the EU’s 2014-20 budget, which, at more than €1 trillion, has the potential to make a real impact on the European economy’s recovery by spending less on agriculture, more on infrastructure, small business growth and research and development, and better using the money currently spent through existing EU structural funds.

Alongside those targeted measures to stimulate growth, the Government should call for the completion of the single market and the digital and energy markets. Completely removing existing obstacles could translate into a 7% increase in incomes per head in the UK, according to the Department for Business, Innovation and Skills. Further integration could therefore provide a genuine and much-needed boost to growth.

[Mark Reckless]

The shadow Foreign Secretary is giving us a tour of the European horizon, but may I pull him back to the Council’s decision, which we are asked to ratify tonight? Does he consider that decision to include the recitals?

[Mr Alexander]

As a former Minister for Europe—and the current Minister for Europe is sitting on the Front Bench opposite—I can say that there is a Council legal service, which can advise about the standing and authority of the recitals. If I recollect correctly, recitals have been judged in previous legal cases to have persuasive effect, and would certainly inform any subsequent legal judgment about Ministers’ intentions in the Council meeting at the time. I therefore think that it was appropriate for the Foreign Secretary to rehearse in some detail the terms of the recital to inform the House about the basis on which the Council reached the decision at the meeting. Perhaps I would add to the Foreign Secretary’s earlier comments that the other great strength of the proposal is the explicit nature of the understanding that the problem is for the eurozone and must be addressed by eurozone members. I have been candid in recognising that, in the teeth of the crisis, in the final days of the Labour Government, decisions were made that reflected the urgency of the moment. One reason why it is in Britain’s interest to support the amendment to the treaty is the facilitation of the eurozone countries’ assumption of the responsibility that we have long argued that they should accept for the currency’s continuing structural problems.

Let me turn to an issue that the Foreign Secretary raised only briefly, in passing. I anticipate that other colleagues will also raise it. It is fair to recognise that the eurozone crisis is now having an impact on the British economy. However, it is wholly wrong to claim, as the Government are trying to do in several different forums, that the current double-dip recession in the UK is the result of the ongoing eurozone crisis. That is an excuse, not an explanation.

First, for most of early 2012 and 2011, exports, including to the eurozone, were keeping the UK out of recession. Secondly, the UK recovery stopped in late 2010, well before the eurozone crisis had fully taken hold. Thirdly, of all the G20 countries, only Italy is in recession as well as the UK, and although the eurozone as a whole is now contracting, it is has not seen three successive quarters of negative growth as, alas, we have witnessed in the UK under the current Government. Although the crisis in the eurozone poses serious risks to the UK economy, the Government’s failed economic strategy has rendered our economy more vulnerable and more exposed to these risks than we needed to be.

The establishment of the ESM is therefore a necessary, if partial, response to the problems afflicting the eurozone. The risks still confronting the eurozone are real and immediate. Ratifying the treaty amendment that allows for the ESM’s establishment must not be seen as an excuse for inaction on the other vital areas where the eurozone is still required to act, or, indeed, on the change of course that is now needed here in the UK.

Amendment of the treaty is not only in the eurozone’s interest, but in that of the UK. For that reason, we support the Bill.

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[Mr Cash]

I am delighted that my right hon. Friend makes that point and I endorse it as a general principle, but instances occur periodically that require a certain amount of investigation and analysis. I did not entirely endorse the remarks made by my hon. Friend the Member for Rochester and Strood (Mark Reckless) in as many words, but I agree with him—and with others—that, at the time in question, decisions were taken that people now regret. I am glad that we have moved on from article 122 to the present European stability mechanism.

[Mr Douglas Alexander]

rose—

[Mr Cash]

I would rather get on with my speech than continue to dwell on the outrageous decision taken, but I will certainly give way to the shadow Foreign Secretary.

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[Mr Alexander]

First, may I identify myself with both the spirit and substance of the remarks offered by the Minister for Europe? Secondly, before the hon. Gentleman proceeds with his speech, does he accept that, notwithstanding his demand for continued investigations, one of his colleagues has perhaps fallen into error in suggesting that the named individual was the permanent representative in Brussels at that time? I think, in fact, that his predecessor was in post at the time when the decisions that are being discussed were reached.

[Mr Cash]

I cannot possibly comment, as they say, on that particular point because I am not aware of all the circumstances. Although mistakes were made, the point regarding the ESM is far more important. I accept that the EFSM is now in the past, but it was an unfortunate incident and all parties involved were culpable of allowing it to be endorsed as a proposal—it remained effective for far too long, with obligations on the United Kingdom and its taxpayers.