European Banking Union: EUC Report

Lord Kerr of Kinlochard Excerpts

Thursday 24th January 2013 Lords Chamber

[Lord Kerr of Kinlochard]

My Lords, I spoke about the noble Lord, Lord Harrison’s, committee’s report—I am a member of the committee—on 17 December, immediately after the European Council that discussed banking union. The noble Lord, Lord Harrison, himself could not take part in the debate in this Chamber. I paid a well deserved tribute to his chairmanship, and also to the role played in the committee by the noble Lord, Lord Hamilton. In the light of the remarks by the noble Baroness, Lady Falkner, I should also have paid tribute to the role played by the noble Baronesses, Lady Hooper, Lady Maddock and Lady Prosser, in what is an extremely strong committee in which I feel privileged to serve.

In what I said then I spoke of general issues concerning banking union and the European Council’s ratification of the decisions reached in ECOFIN. I do not intend to talk about that any more, because I know that the noble Lord, Lord Newby, spent Christmas with the relevant Hansard entry of 17 December, cols. 1388 to 1391, at his bedside, and that every time that he had difficulty falling asleep he read my limpid language. I want to talk this time only about the impact on the United Kingdom and the United Kingdom financial services industry.

The Government declared victory in the European Council on 12 December and the Prime Minister referred again to that victory yesterday, when he talked in his speech about his success in,

“securing protections on banking union”—

protection, that is, for member states that choose not to be members of the European banking union. My concern today is to try to establish just how secure these protections are. I want to make a couple of general points first, and then I want to put three specific questions to the Minister. They are questions which are pretty obvious really, and they cover exactly the same territory as the noble Lords, Lord Harrison and Lord Trimble, and the noble Baroness, Lady Falkner, took us into. So there will not be any shock or surprise.

I shall take my general points first. First, if we were to leave the European Union, the sort of protections that the Prime Minister was talking about are written on water. We would have no say in EU legislation, regulation and supervision if we were not members of the EU. I entirely agree with what the Prime Minister said yesterday about the impossibility of seeing the United Kingdom in a Norway or Switzerland situation. I think it is very important to recognise that the sort of protections that you get in the single market require you to be a member of the European Union as well as the single market.

Secondly, I worry that the possibility of our leaving the European Union could have a chilling effect on the City. The City has critical mass, of course, in a way that no other European financial centre does. We have not seen entities flee the City because we are not in the eurozone—at least I have not; I do not believe that there has been much—but nor have we seen, until yesterday, a British Prime Minister raise the possibility that he might, in a referendum, recommend our leaving the European Union. That is the logic of what he said yesterday—that it is conceivable that he might. The new settlement he seeks depends on our convincing every other member state either that they buy our prescription for “fundamental, far-reaching change”, or that they agree that we may have carve-outs, specific to the UK, from existing EU treaties to which we have previously signed up. Either of these is quite a tall order.

Therefore it is at a minimum conceivable that the new settlement will not be available, or that it will be so small and so trivial that the Prime Minister’s party will mock him if he says, “This is a new settlement”. Where then does he go? He was not prepared to acknowledge the logic of his position yesterday when Nick Robinson put the question to him. My worry is that foreign investors may draw their own conclusion. I do not know how big this effect will be, and I may be exaggerating the risk; but in this House we have all, when talking about Scotland, agreed with the Government in their criticism of Mr Salmond for delaying his referendum until October 2014, because of the chilling effect on inward investment of the uncertainty created and prolonged for two years. We have now created for the United Kingdom as a whole a precisely similar uncertainty, which is actually more existential for the financial services industry which we are talking about in this debate. I do not know how valid the point was when it was made about Scotland, but to the extent that it had validity when the Government made it about Scotland, they should be acknowledging it when it is now made about the United Kingdom as a whole.

The protections that the Government secured seem to be threefold. First, the non-discrimination clause states that,

“no action, proposal or policy of the ECB shall directly or indirectly discriminate against any member state or group of member states as a venue for the provision of banking or financial services in any currency”.

I think that that is an achievement. I agree with that. I think that what the Government said about it is correct. It is worth having, although it says nothing more than is in the treaty. It is worth having because we have cases in the European Court of Justice on precisely this point. It will have some beneficial effect in those cases. What goes without saying is often best said. So I regard that as an achievement.

Secondly, we have established the principle of,

“symmetry of treatment between the ECB”—[Official Report, Commons, 19/12/12; col. 102WS]—

and other supervisors. I am not really sure what that is worth. I do not think that it is worth very much, because whatever the principle, the ECB will be a very big beast on this stage. It is going to be a very big supervisor. There will be only one other very big supervisor, and that is the Bank of England. I think that the text that we have not seen—that has not been drafted, that does not yet exist—of the proposed memorandum of understanding between the Bank of England and the ECB is probably much more important than a European Council text enshrining this principle.

The third protection—the really big protection, the one that has been spoken about by every other speaker in this debate—is the double majority, the requirement for 50% or more both of participants in banking union and of non-participants in banking union, subject to review if the number not participating falls below five.

Hence I come to my specific questions to the Minister, and there are three. First, how many member states have, like the United Kingdom, declared that they definitely will not be part of a banking union? I think that it is only the Czechs so far. Is that right? Secondly, how many of the non-eurozone 10 have declared that they definitely will join? I think that it is four. Is that right? Thirdly, what view do the Government take of the likely decisions of the others—four, if I am right, but I do not know whether I am or not?

It is really very important for reasons that previous speakers have given and because we know that the ECB intends to ensure that the majority group in the EBA speaks with one voice. That is what the ECB’s opinion says, so retaining a viable minority group matters, and if the review clause is triggered, we all know what will happen. The matter will then go into the Council where, by definition, we will not have a blocking minority. I ask because, given the risk that the only strong protection secured in December—this one—falls away, it really is important for the City to know how many friends we have. Is the number going to fall below five or not?

Lastly, and briefly, market practitioners will make their own decisions about all these things. European Council and ECOFIN conclusions and ECJ cases are all very important and keep people like me very happy, but they do not actually determine what the market does. As, us apart, the eurozone becomes over time more coterminous with the European Union, we need to think about what perceptions market practitioners will have. Will they believe that it is plausible that the majority eurozone group, plus the extra members of the banking union who are not members of the eurozone but are candidates and postulants—pre-ins—to the eurozone, will conclude for all time that their major financial centre should still be offshore, in our country? Will they believe that the ECB will be willing to allow non-euro-area resident entities here in Britain to have free access to its free discount facilities? Will practitioners believe that they might be wise to reduce their counterparty risk by relocating into the eurozone? I do not know, but I am speaking of the possible perceptions of market practitioners.

Insisting on our rights in the single market is absolutely correct. Going to the Court when we think that these rights are under attack is absolutely correct. I am sure that we can play a good defensive game. But markets will make their own judgments. Financial services can relocate very fast, far faster than any other industry. That is one reason why I am so worried about our increasing isolation in Brussels, and about the signal that we have sent this week. The Channel is getting wider so quickly that I fear the movement may be visible from Tokyo, Beijing and New York. We already know that our friends in Washington have seen it and worry about it. I think that we should all worry about it.

[Lord Hamilton of Epsom]

Like the noble Lord, Lord Kerr, I pay tribute to our chairman, the noble Lord, Lord Harrison. He has always been a very genial and capable chairman. I am particularly grateful to him for the fact that we now seem to be getting before our committee rather more representative witnesses, who on occasions represent the majority of the British people. Unlike the noble Lord, Lord Kerr, who I enjoy having on our committee—we have our differences but they are always agreeable ones—I am not going to speak too much about the Prime Minister’s speech as my noble friend Lady Noakes has a debate on it next Thursday, to which I hope to contribute. All I would say is that it is a very clever speech. Rather like the Old Testament, there are bits in it which suit absolutely everybody. It does not really matter whether you are a Europhile or a Europhobe. There is something in the speech to keep everybody happy.

On our report, I do not know how many people have actually read it; certainly not an awful lot of action has been taken on it. We must be well aware that the single supervisory mechanism has been adopted, but an awful lot of other things that were heavily recommended in our report have not. I refer particularly to the recovery and resolution directive, which is possibly equally important, if not more so. Of course, the intention was that it would be introduced at the beginning of this year. I now gather that the Dutch and others who see themselves as picking up the tab for ECB intervention into banks have backed off. They do not want to get involved in that anymore. They are going back on earlier undertakings, which is rather typical of how the EU operates most of the time. It takes two steps forward and one step back, and if everything gets rather difficult or if things, as it seems to believe today, are looking rather better, it is a wonderful excuse to do nothing. If that is the EU of which we all want to be part, that is fine, but it certainly does not seem to be the answer for the United Kingdom. Earlier this week, we had some witnesses who described the state of European banks as they now are: they are European in life but still remain national in death.

We are now in a very significant situation. The problem with the EU is that it does things, with enormous reluctance, only when faced with a very major economic crisis. You merely have to lurch from one crisis to another before any difficult measures are taken. There may be people in this House who are dreaming of the day when Europe moves towards much greater integration but it is quite difficult to see how that will happen. It also seems quite clear that it will happen only when there has been one crisis after another.

In 2011, the Prime Minister called for the “big bazooka”. He wanted a major move made that would stabilise the sovereign debt crisis in the EU. What happened? Absolutely nothing happened and things got worse and worse. Interest rates on Club Med debt went through the roof. It became such a crisis that eventually the Germans agreed that Mario Draghi should make his statement that he would do anything necessary to stabilise the eurozone. At that stage, the markets calmed down. It was only because it took that long for German agreement to come through and, by that time, confidence had been undermined all over the eurozone. Sovereign debt was getting completely out of control. Investment decisions were being put on hold. When you get that across a large economic area such as the eurozone, you see the economy moving into recession and things getting very much worse.

I always get a wonderful narrative from my son-in-law, who is German and works for a German bank in London. He says that Merkel is playing a fantastically clever game. She is delaying like mad and restructuring the economies of countries in the eurozone. But what she has actually done is bring recession across the whole of the eurozone. Germany itself is now in recession. That does not strike me as being statesmanship. It comes as no surprise to me that she has just lost some Länder elections in Germany. I will be quite surprised if she wins the general election in September of this year. I do not think that there is much to be happy about with the way in which the eurozone is performing at the moment.

Earlier this week, our witnesses said that eurozone bank indebtedness would disappear like the snow in the sunshine once we had economic growth in the eurozone. There are two problems with that. First, we have absolutely no idea of the scale of bank indebtedness in the Club Med countries in the eurozone. However, we know that we are reaching a situation where a number of countries—because they are faced by serious social problems—have said that their banks cannot repossess properties and throw people on to the street. That means that people in those houses stop paying their mortgages because they cannot afford to do so. The next thing you have is moral hazard when someone says, “Well, hold on, my neighbour is not paying his mortgage repayments because he can’t. But I think I won’t pay mine either, although I can”. That leads to a very major problem in the banking sector because all the mortgages are going wrong and you are talking about sliding property prices anyway.

I agree that economic forecasting seems to have gone a bit wobbly right across the board, but if there is any consensus it is that there will be absolutely minimal growth in the eurozone for the next two years. I do not think there is any point in looking much beyond that. However, two years is a long time to have no growth and no relief on this side of things. For that reason, the banking crisis is certainly not over. If the ECB is not going to make itself liable for bank debt, another banking crisis will lead to a sovereign debt crisis and we will be back in much the same situation we were in a few months ago.

There are also serious questions about how much freedom the ECB has to buy sovereign debt. Officially, it is not allowed to print money and the Germans are desperate to try to keep a hold on how much money the ECB spends. They want to pass resolutions in Parliament before very much more money is extended to the ECB. We must accept that, although the recovery and resolution directive has not gone through, there probably will be a crisis which will eventually force it through. Then we will have a very interesting situation. There has been a lot of comment in this debate already about whether we are covered by a double lock voting system in the European Banking Authority. But, come on, let us live in the real world. In the real world, the executive arm will be the ECB, which will make up the rules as it goes along. I do not think that it will constantly refer back and say, “We have a crisis on our hands. Is the EBA happy that we can do this, that or the other?”. I think that the guidance that will come from the EBA will be extremely broad in anybody’s language and that the ECB will become very much more powerful as it goes along.

We also have the problem of what on earth we do about democratic accountability. It is not going to be a very satisfactory situation when the ECB moves in on a large bank and says, “This thing is going absolutely nowhere. Its liabilities are appalling. We must lay off half the people, break it down and get it into a more sensible state”. That will not be a popular move when thousands of people are put on the street. You can imagine that at that point the local politicians will all say, “This is nothing to do with us, you know. It is the ECB that is doing this. We don’t like to mention it but it is the Germans standing behind them”. That is the sort of situation you are going to get. If you have no democratic accountability—there is absolutely none as regards the ECB—you will have some very serious problems when things start to go wrong with banks. This is all far from being satisfactory and does not bode well at all for those eurozone countries which desire this great process of integration.

[Lord Kerr of Kinlochard]

The problem of democratic accountability is very real, as described, but I think that everybody is well aware of it. Certainly the European Parliament is extremely well aware of it, which is why it is linking the two texts. The ECB text is nothing to do with the European Parliament but it will not agree it until it has agreed the EBA text, which is to do with it. I am sure that it will insist on some sort of democratic accountability provision being built in.

[Lord Hamilton of Epsom]

I wish that I shared the noble Lord’s confidence, but I do not. I cannot see where this democratic accountability is going to come from because at the end of the day the EBA is the only thing that has any democratic accountability, and if it is laying down broad policies and the executive action is being taken by the ECB, that is where the rub is going to come—with the executive action being taken by the ECB. Perhaps something will happen, but there does not seem to be much sign of it at the moment.

We will face crisis after crisis, which will merely prolong the uncertainty and the general conditions that we have in the eurozone today whereby people are still very reluctant to invest in this area and stagnation seems to be continuing. Resentment will increase. Everybody says that we need a completely integrated fiscal union in the eurozone. Well, come on. You will have a growing problem with the Germans resenting massive transfers of money to the Greeks—to talk in extremes. The Germans will not allow those transfers of money to take place without enormous conditions being placed on the Greeks. The Greeks will all riot in the streets because they will say that the terms under which the money is being transferred are too stringent, and the Germans resent giving the money. Is this the sort of Europe we want to live in? Already we are beginning to see very extreme parties appearing in Greece. Everybody goes on about the fascists in Greece, but you have to bear in mind that the communists are much bigger than the fascists and much more likely to win the next election. Either way, we are seeing very extreme parties emerging.

Then we have the Prime Minister’s speech and the idea that we should have a referendum in 2017-18 on whether we should be in or out of the European Union. If the eurozone is going absolutely nowhere and is no better than it is today, as many people think will be the case, I cannot see this country ever voting to stay within the European Union.

--- Later in debate ---

[Lord Newby]

My Lords, I thank the noble Lord, Lord Harrison, and the European Union Committee for the report and for the typically thorough work they undertook before they drew up their proposals and thoughts on the European banking union. As we made clear before, we believe it is vital for the UK that financial stability is restored to the eurozone, and these proposals set out ambitious reforms to help achieve that. Their potential impact is significant in the UK as well as in the eurozone, and it is important that they are properly scrutinised and that the issues they give rise to are properly debated. So I am grateful for the committee’s efforts and for the chance to do just that today.

As noble Lords are aware, the Government support proposals to establish a comprehensive banking union in the eurozone and have been engaging positively in the negotiations. Achieving a genuine economic and monetary union and restoring stability within the eurozone will require a comprehensive set of measures, including a single supervisory mechanism, risk mutualisation plans, such as mutualised deposit guarantees, a common fiscal backstop and a common framework for rescuing eurozone banks. These measures together will help to break the dangerous, and mutually destructive, link between indebted countries and unstable eurozone banks by mutualising financial risk across eurozone countries.

The December Council meeting marked a significant point in the negotiations to establish a single supervisory mechanism and, importantly, as we have been discussing, the Council agreed a number of safeguards for the single market which will ensure that neither the City nor the UK will be marginalised. A number of noble Lords have referred to some of them, but I hope the House will not mind if I set out some of these protections.

First, the ECB will have a duty to have regard to the unity and integrity of the internal market in performing its supervisory tasks. The noble Lord, Lord Kerr, said that that may not be a new duty, but it is quite helpful to have it reiterated. Not only that, it will also be subject to an obligation to ensure that no action, proposal or policy of the ECB shall directly or indirectly discriminate against any member state or group of member states as a venue for the provision of banking or financial services in any currency. The ECB will be required to agree a bilateral memorandum of understanding with the UK—by which we mean the PRA—setting out how it will co-operate in discharging its supervisory tasks, so we can look forward to a constructive and collaborative supervisory dialogue underpinning the robust supervision of cross-border firms and activities throughout the EU. The way in which the supervisory authorities in the UK and the EU work together now, not least the ECB and EBA, is through close, professional working. It is not done in the spirit of two mutually opposed forces coming together on a day-to-day basis with different views. They are technicians, very often, trying to deal with common, difficult, technical problems, and that has infused the discussions to date.

In December, there were two important decisions on parity within the single market, which mean that the PRA and ECB will be operating on equal terms. The Council agreed the principle that the ECB’s supervisory powers should be analogous to those available under Union law to national supervisors in non-participating member states. Powers and decisions of the EBA, for example in cases of binding mediation in the event of disputes between supervisors, will apply equally to the ECB and other supervisors. So the ECB has no special status.

Perhaps most importantly, as a number of noble Lords have pointed out, the Council agreed that key decisions in the EBA will be made by a double-majority voting system. Therefore, although we hope that the EBA will continue to be driven by consensus, with votes very much the exception, the voting arrangements will ensure that all member states, whether or not participating in the banking union, will continue to have a meaningful voice. In practical terms, where the EBA votes on a standard which applies to firms throughout Europe, this will require the support of those in the banking union and those outside it. Not only will the usual qualified majority apply, but a majority of the group of non-participating member states—which, of course, includes the UK—will also have to support any proposal.

A number of noble Lords have expressed support for these protections. It is fair to say that even if the Council had not actually read the report of the committee of the noble Lord, Lord Harrison, it did address a number of the other issues raised in it. First, it clarifies the scope of ECB supervision. It establishes robust governance arrangements in the ECB which separate the performance of the ECB’s monetary policy and supervision tasks. These arrangements will also ensure that those non-eurozone member states which choose to participate in the SSM will have a voice in decision-making. We should not think that separating those two elements of what the ECB does is too difficult a job. That is, broadly speaking, what we are going to be doing with the Bank of England, the PRA and the other bodies that we have just established here. It is eminently doable. The way in which the EU and the ECB are setting about doing it looks perfectly reasonable.

The Council decision also confirmed that the EBA will ensure a geographical balance in its appointments. On this point I need hardly remind noble Lords that the UK plays a leading role in the EBA and currently holds one of the six seats on its management board, which is based in London.

While the Government are broadly content with the outcome of the December meeting, noble Lords will be aware that negotiations are ongoing. However, I assure you that we are working hard to ensure that the final agreement continues to reflect these points. As for the next steps, negotiations concerning the recovery and resolution directive are similarly active. I will come back to those shortly.

However, proposals relating to the second and third pillars of the banking union—the common resolution mechanism and the common deposit insurance scheme—have not yet been issued. We recognise that the decisions relating to the funding of any resolution mechanism and deposit insurance scheme are politically difficult, particularly within participating member states, and decisions relating to debt mutualisation and common fiscal backstops are more difficult still. None the less, in the context of a banking union for participating member states, the UK supports these concepts in principle. Having said that, we cannot provide more detailed views until the proposals have been published, although of course we take note of the points that members of the committee have raised in their report and today.

On the specific points raised by noble Lords in their speeches, the noble Lord, Lord Harrison, was the first to raise the question of the concentration of power in the ECB, which I have spoken about in part. As I have said, there is an analogy with the Bank of England to a certain extent. For clarity, although there are 6,000 banks within the eurozone area, the ECB proposes to directly supervise on a continuing basis probably a couple of hundred of them. However, it will retain the power to go in if there is a particular problem, where a national supervisory body may be thought by the ECB not to be dealing with an issue adequately.

In that respect the noble Lord, Lord Flight, used the analogy of the ECB’s role being a bit like the PRA as opposed to the FCA in the UK. It is not a direct analogy but there are some relevant comparisons. We think that the system we have set up will be robust. If that is the case, in principle, the one being envisaged here also should be. The problem is that it is a multiplication of the kind of problems that we had here when the crisis struck. When everything is going well, you can make things work. But, here, we had a real problem with managing a financial crisis because two or three individuals could not make the system work.

We hope that we have changed the system to make it less dependent on individuals but when you have a system involving a minimum of 17 national supervisors and a super-supervisor, as it were, no one in their right mind would think that dealing with a crisis will be easy. In particular, by definition, no one will have been through it before, so they will be learning on the job. That is an inevitable consequence of doing anything new. The ECB is working very hard to put in place systems which it hopes will be very robust in stressful times.

The noble Lords, Lord Flight and Lord Trimble, asked about what is happening next and whether the steam has gone out of the negotiations. We are very confident that the steam has not gone out of the negotiations in terms of the SSM. The Irish have got this as one of their top priorities during their presidency. We are hoping that relatively soon there will be the final agreement on the regulation which will underpin these changes. We hope that the SSM will be operational by March 2014, which, in anyone’s view, is as quick as one could reasonably expect.

The noble Lord, Lord Harrison, was the first to raise the dread word “referendum”. He described it as new-fangled. I have very fond memories of the 1975 referendum. However, I remind him that the Government have legislated for referendums to take place on European matters in the UK when significant changes are due to take place. That was before the Prime Minister’s speech yesterday. I am delighted that next week the House will have the chance to spend considerable time talking about this matter; not least because it enables me to say today that I am not going to talk about it because the House will have considerable time to talk about it next week. As noble Lords can imagine, that is a considerable relief.

Among other things, the noble Lord, Lord Trimble, asked about the timetable on the recovery and resolution directive, which is obviously of huge importance for the whole of the EU. Again, these are one of the priorities of the Irish presidency, which is looking for an agreed approach in the first quarter of this year. Member states, including ourselves, are actively and positively engaged in these negotiations. We strongly support this timetable as it is essential that all member states need to get a common set of credible tools and powers to deal with resolution and recovery as soon as possible.

The noble Baroness, Lady Falkner, was worried about the male-dominated nature of the debate. I think that this gets back, in part, to the male-dominated nature of the financial services sector, which will take a long time to sort out. However, as other noble Lords have pointed out, on this subject, we have some extremely eminent female economists and knowledgeable women in your Lordships’ House. I hope that they will speak in future debates.

The noble Baroness referred to bond yields and breaking the debt spiral. I think that I can give her more than a glimmer of hope in terms of bond yields. The bond yields of Greece, Spain and other countries under stress have fallen significantly. In Greece, they have fallen by one-third over the past two months. This is a very big shift in the right direction as far as they are concerned. Bond yields now in the vast bulk of the eurozone, even among the difficult economies on the periphery, are at a sustainable level.

The noble Baroness referred to the financial transactions tax and asked whether this could damage London. The Government’s view is that we have no intention of joining the FTT. We do not believe that it will have a deleterious effect on London, quite the opposite; however, I have severe doubts as to whether the FTT will ever raise anything like the funding that is envisaged for it. I remind noble Lords that we already have our FTT in the City on shares; it is known as stamp duty, so this concept is not totally unknown to us. However, it has to be said that the City is very keen for us to abolish it and believes that there would be significant economic benefits if we did so.

The noble Lord, Lord Kerr, as always, asked a number of very specific and penetrating questions. He asked how many countries will remain with us in our “out” group, and what they have said so far. Their attitudes are, like ours, dictated by their domestic debates. Some have confirmed that they will not join for now, some have confirmed that they are unlikely to join in the long term and others have said that they intend to join at some point. However, given that the eventual package is not known, we do not think that it is wise for us to give names at this stage because it would be unfair to say that all those countries have formed an absolutely settled view about what they are going to do. As noble Lords say, if the number of “outs” falls, there will have to be a review and we are confident that we will be able to secure a sensible voting arrangement going forward. However, we do not envisage that we will be in that position for some considerable time, if at all.

[Lord Kerr of Kinlochard]

I am very grateful to the noble Lord for giving way. Can he help me? In the cases where countries have declared a position, will he write to me and set out what that position is? I drop my third question, which is: what is the Government’s assessment of where those who have not declared are likely to go? However, my first two factual questions are the following. What are the public positions? Where there are public positions, will the noble Lord write and let me know what they are?

[Lord Newby]

Yes, of course. It will not be a comprehensive letter in the sense that not all the countries have expressed a position, as I said, but one or two have and we can collate those relatively easily.

The noble Lord referred, as I did in my introductory remarks, to the importance of the MoU between the Bank and the ECB. We agree with him that it is crucial in setting the tone for the supervisory relationship. The Bank and the FSA are already working with their ECB counterparts and both sides, as it were, are keen to ensure that we have a robust approach to supervision of cross-border banks and cross-border financial services activities.

The noble Lord, Lord Hamilton, was the gloomiest voice in the debate. I would like to comment on two of the points that he raised. The first was about accountability and the extent to which there is a democratic deficit. The ECB is accountable to the European Parliament and the European Council. National parliaments of participating member states will be able to hold it to account through questions. I think that for the foreseeable future national parliaments will play a larger role in terms of the profile of the accountability than does the European Parliament, given its low profile. This debate here is an example of the kind of thing that one hopes would be happening across the EU.

The noble Lord, Lord Davies of Stamford, raised a number of issues and came up with three logical outcomes in terms of our supervision compared with that of the ECB: either we do what it says or it will be more or less strict—I paraphrase the noble Lord. That is slightly misleading, given that we are working towards a common rulebook. So the supervisory approach will be broadly common. For example, the recovery directive is one way in which there will be a broadly similar approach across the EU, with or without the banking union.