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

Debate between Emma Reynolds and James Clappison

Monday 10th September 2012 Commons Chamber

[Emma Reynolds]

As always, it is a great pleasure to follow the hon. Member for North East Somerset (Jacob Rees-Mogg). On behalf of the Opposition, I, too, would like to thank all right hon. and hon. Members who have taken part in today’s and last week’s debates on the Bill.

The Opposition support the Bill, as my right hon. Friend the shadow Foreign Secretary and I set out on Second Reading. Indeed, there seems to be a worrying level of harmony between those on the Opposition Front Bench, the Government Front Bench and the Liberal Democrat Benches. It even extends to the hon. Member for North East Somerset, to whom I say, in French, c’est un plaisir. To return the compliment, it is a pleasure to be in agreement with him. That agreement, however, does not extend to all of the Conservative party’s Back Benchers. As ever, there is some disagreement between those on the Treasury Bench and Conservative Back Benchers, but let us not dwell on that.

The Bill does not deal with the substance of the eurozone’s new bail-out fund, the European stability mechanism; it deals only with the treaty change required to allow for its establishment. To make our position clear, we do not believe that the UK should stand in the way of the eurozone setting up a fund that will be financed by the eurozone, operated by the eurozone and used by eurozone countries should they need that support. We believe that the eurozone must be allowed to take responsibility for this new, permanent bail-out fund.

Forty per cent. of British exports go to the eurozone, and many British businesses rely on the wider consumer market of 500 million people offered by the European Union. We therefore support immediate and decisive action by the eurozone to stabilise the single currency, because we believe that that stability is firmly in the UK’s national interest. The European stability mechanism is one necessary element of that decisive action. For too long there has been an absence of concrete action by eurozone leaders. Political inaction has, unfortunately, become the norm. As the eurozone’s problems developed, that inaction served only to deepen the crisis.

As many commentators have noted recently, had the European Central Bank announced its support for the eurozone two years ago and used the unequivocal terms that we have heard recently from Mario Draghi, who said that the ECB would provide a fully effective backstop for the currency, it is possible that the crisis would not have reached this stage and that it would be nearing its end.

As the OECD stated last week,

“weakness in the periphery is spilling over to the core.”

It continued that

“further policy action is needed to instil more confidence in the monetary union.”

Although the ESM is certainly not a silver bullet to solve the eurozone crisis, its establishment is definitely part of the solution and is exactly the type of action that the OECD has called for.

Speculation on the future of the euro and uncertainty about the political will of eurozone leaders to save the currency have driven instability in Europe’s financial markets. Without that essential market confidence in the eurozone’s readiness to protect its weaker members, borrowing costs for countries on the periphery have rocketed. Coupled with the weak and under-capitalised banking systems of certain countries in the eurozone, that has led to a vicious circle of financial instability.

The OECD has emphasised that:

“Solvency fears for banks and their sovereigns are feeding on each other.”

It also stated:

“Concerns about the possibility of exit from the euro area are pushing up yields, which in turn reinforces break-up fears. It is crucial to stem these exit fears.”

It is clear that as banking systems have become increasingly weakened, pressure has grown on sovereigns, and that as the financial uncertainty has grown, the cost of sovereign borrowing has risen, which has raised borrowing costs for businesses and individuals. As economic growth has stagnated, the Governments of certain eurozone countries have had to borrow more, and as they have become more indebted, fears about their sustainability and ability to support their banking sectors have risen. That has driven an increased cost of borrowing, and the cycle begins again.

In the short term, it is extremely difficult to break that vicious circle without action from an external body, such as the EU, the ECB or the IMF. In Greece, Italy and Spain, the circle has become almost impossible to break without the financial markets believing that the eurozone as a whole is acting as guarantor.

Six weeks ago, the president of the ECB, Mario Draghi, said that he would do “whatever it takes” to save the euro. Only with that guarantee does the ECB believe it can break the vicious circle and begin to lower the cost of borrowing in the eurozone periphery. To that end, the ECB last week announced plans for a new scheme of Government bond buying, which will operate alongside the ESM. Along with other voices around the EU, including our Government and other Governments, we welcome last week’s announcement. Indeed, the French President, Francois Hollande, said in reaction to Mario Draghi’s announcement that “the euro is irreversible” and that the eurozone is now solving problems that have been pending for too long.

[Mr Clappison]

The hon. Lady is giving a most interesting analysis of the situation. What is her view, as the Opposition spokesman, on the means by which the ECB’s interventions will be financed?

[Emma Reynolds]

It was important that in its announcement, the ECB emphasised that there would be some sterilisation of its additional spending, which was intended to allay fears about inflation, particularly in Germany.

[Mr Clappison]

How credible does the hon. Lady think those promises of sterilisation are?

[Emma Reynolds]

The market reaction to Mario Draghi’s announcement suggests that they are very credible, because in the days afterwards, the markets rallied.

--- Later in debate ---

[Emma Reynolds]

I thank the hon. Gentleman, because he brings me on nicely to the next part of my speech, which is about the conditionality of the ESM and the bond buying that was announced last week.

The conditionality of the ESM requires further scrutiny. As with our Government’s economic failings, we are concerned that the ESM will impose harsh austerity on countries that receive its support, and thereby choke off economic growth and recovery. In the UK, the effect of such “austerity alone” economics is acutely felt by the 2.65 million people who are unemployed. The former US Treasury Secretary, Larry Summers, last week reflected on the Government’s economic mismanagement at a conference in London:

“We have avoided the prospect of a 1930s-like experience in the US. I cannot say the same with respect to Great Britain. The downturn in British output is more sustained than at any point in the twentieth century. In such an environment, to radically slash public investment is, I would suggest, to violate the Hippocratic Oath—first, do no harm.”

Although he was referring to the catastrophe of our Government’s economic policy, he could have been talking about other countries within the eurozone that have been the subjects of severe austerity.

Although it is true, as the hon. Member for The Cotswolds (Geoffrey Clifton-Brown) suggests, that the fiscal position of countries in the medium term must be looked at—the level of debt to GDP in Greece, which has been over 100% since the early 1990s, is certainly unsustainable—Greece and other countries must be allowed to get back to growth as a means of reducing their deficits and debts. As we are seeing in this country, without that growth, it is more difficult to bring down a country’s annual deficits and longer-term debt.

Thankfully, the debate in Europe is beginning to shift towards a focus on growth and job creation, rather than austerity alone. In particular, we welcome the growth measures agreed at the European summit in June. However, we note that the debate is ongoing in Europe between those who argue for growth and job creation, and those who believe in austerity. It is regrettable that our Government are still very much on the wrong side of that debate.

The Government try in vain to blame the eurozone for their own economic failure, but even their own Back Benchers are not convinced. Last week, the right hon. Member for Haltemprice and Howden (Mr Davis) told an audience in the City that it was wrong for the Government to blame the eurozone for their current economic failings. Before the summer recess, the hon. Member for Bury St Edmunds (Mr Ruffley), a member of the Treasury Committee, said that the Government must not use the eurozone crisis as an alibi. The Opposition recognise the importance of the eurozone and of Britain’s place within the EU in building growth and prosperity. However, the Government’s failure to deliver growth two years ago and their continuing failure to focus on it have left us more vulnerable to the escalation of the eurozone crisis.

I will reflect briefly on the wider future of the eurozone and the role that the ESM will play. In contrast to the unequivocal statements of support for the euro from Mario Draghi and Francois Hollande that we have heard in recent days, some hon. Members have called today and throughout the Bill’s passage for the break-up of the euro and have argued against the establishment of the ESM. However, the break-up of the eurozone is not an easy, cost-free way out of the crisis.

If Greece were to leave the eurozone, the consequences could be disastrous for Greece and for the rest of the EU. If the euro were replaced by a new currency in Greece, the value of that currency would in all likelihood plummet, causing a further disaster in the Greek economy. Moreover, the contagion effect following that could be hugely damaging for the rest of Europe. Far from stabilising the eurozone, a Greek exit might serve only to deepen the sovereign debt crisis. International lenders, seeing Greece cut loose from the euro, may become wary of lending to other struggling states in the eurozone. Greece may become only the tip of the iceberg as investor panic drives up borrowing costs for Italy and Spain, the eurozone’s fourth and third largest economies.

[Mr Clappison]

I am grateful to the hon. Lady for giving way; she has been most generous. Throughout the debate, I have been interested in how the various measures will be financed. She has now turned from Mr Draghi’s proposals to those that we have in front of us today. What is her view of the fact that Italy and Spain seem to be significant contributors to the ESM, even though she has just mentioned them as being prospective beneficiaries?

[Emma Reynolds]

It is not impossible for them to be beneficiaries and contributors at different points, so I do not really see the difficulty that the hon. Gentleman is trying to point out.

Depositor confidence would also be damaged by the contagion effect that I mentioned. In the past year alone, 10.9% of deposits have been withdrawn from Spanish banks, which is a staggeringly high amount. In the event of a Greek exit, it is unlikely that such banks would be robust enough to survive if there were a sustained run. In that scenario, the Greek bail-out could appear small in comparison with the sums that may be needed to support other states in the eurozone.

For the reasons that I have given, we support the Bill. The establishment of the ESM is not a silver bullet, but it is nevertheless a key part of the solution that is so urgently needed to resolve the eurozone crisis. It is manifestly in the UK’s national interest that stability is restored to the eurozone, so we welcome the Bill.

Question put and agreed to.

Bill accordingly read the Third time and passed, without amendment.

European Union Bill

Debate between Emma Reynolds and James Clappison

Tuesday 25th January 2011 Commons Chamber

[Mr Clappison]

I am grateful to the hon. Lady for giving way. She is making a very good case in a very cogent way. As a member of the European Scrutiny Committee, however, may I gently say to say to her that although I will have certain points to make about the written ministerial statement, it goes much further than anything that was permitted under her party’s Government? For 13 years, we had no votes on opt-ins or anything else to do with these matters and, by and large, we had scrutiny without votes at the end of it.

[Emma Reynolds]

That is certainly true, but I remind the hon. Gentleman that both the Single European Act and the Maastricht treaty involved a much greater transfer of powers than anything we have seen since and the Foreign Secretary voted against a referendum on such matters. Let us talk not only about consistency on this side, but about consistency by those on the Treasury Bench, too.

The Government have decided to opt in to eight pieces of justice and home affairs legislation since the general election. The hon. Member for Daventry has mentioned one of them—the European investigation order. The Opposition would have liked to have had a say on the Government’s decision not to opt in to the EU directive to combat human trafficking. Indeed, we judge the Government’s decision not to opt in to be a dereliction of duty as regards combating this modern form of slavery. I imagine that some Back Benchers sitting behind the Minister—as I have said, the hon. Member for Daventry has mentioned this—would have liked more time on the Floor of the House to discuss not only the European investigation order but the other seven measures that the Government opted into.

Another area that the Government have totally neglected to mention in the Bill is the wholesale transfer of the body of justice and home affairs legislation to the jurisdiction of the European Court of Justice. The decision that the Government have to take in 2014 either to opt in to the body of legislation in its entirety or not to do so was also referred to in the Minister’s written ministerial statement last week, but it is not mentioned in the Bill and is surely of equivalent significance to many of the changes in clause 6. In fact, the Conservative party manifesto stated that the Conservatives wanted to repatriate powers in employment and social affairs and criminal justice.

In his ministerial written statement, the Minister said there would be a vote in the House on the decision in 2014—we welcome that. However, I am sure that some of his Back Benchers will tell him that it is his best chance to repatriate powers in the field of criminal justice. Such a move would be unilateral and could be carried out with relative ease. The Government will not be able to do the same in the field of employment and social affairs without the unanimous agreement of all the other 26 member states. Given that this is the Government’s only chance to fulfil that manifesto commitment, are they minded to take up this opportunity? Are not these changes more important than those in clause 6?