Debate resumed.

2:19 pm
Photo of Jim Shannon

Jim Shannon (Shadow DUP Spokesperson (Health); Strangford, DUP)

I rise to support the motion before the House and to add some comments to the debate. I want to give a couple of examples—fishermen and the farming industry—where the EU is creating more hassle than can be justified. I am of the school of thought that we should make the best of a bad job, and on many occasions we have to do that. The EU, along with the way in which it is run, is most certainly a bad job, yet at present we are in it whether we want it or not. It therefore falls on this House, MEPs and another place to do our best to hold the EU to account as far as possible for the events that take place over in Brussels. We have an opportunity today to debate that and vote on it.

It is clear that the European financial stabilisation mechanism is not fit for purpose; owing to this, the UK could be held liable as a member state. On 9 May 2010, the European financial stability facility was created, and it is a special purpose vehicle agreed by 16 members of the eurozone and aimed at preserving financial stability in Europe by providing financial assistance to eurozone states in economic difficulty. Thus far, we are not at all involved, but no to the euro meant no to the EFSF. The tricky part came with the notion that the facility may be combined with loans of up to €60 billion from the European financial stabilisation mechanism, which is again reliant on funds raised by the European Commission using the EU budget as collateral, and up to €250 billion from the IMF, all to secure a safety net of €750 billion.

If there is no financial operation in activity, the EFSF would close down after three years, on 30 June 2013. If there is a financial operation in activity—which of course there is—the facility would exist until its last obligation had been fully repaid. There has indeed been activity, and a good deal of it involving the EFSM, despite the fact that it should not have been involved to the extent that it had an equal if not greater share of the bail-outs. The purpose of the European financial stabilisation mechanism is to provide an emergency funding programme that is reliant on funds raised on the financial markets and guaranteed by the European Commission using the European Union budget as collateral. I want to give some examples of where things have gone pear-shaped, to use that terminology.

It seems abundantly clear that, as a non-eurozone member, we can be held accountable only for the EFSM, yet for some inexplicable reason it was this funding that bailed Ireland out—to the tune of €5 billion—as opposed to the eurozone funding, which should have borne the brunt. We are neighbours of Ireland, and I do not wish to be harsh. Of course we want to help out where we can, as a healthy Irish economy could benefit the Northern Ireland economy, owing to the shared land border. However, it is hard to grow this sense of neighbourliness when we see the fund enabling Ireland to undercut us on corporation tax, which subsequently encourages business investment in the Republic as opposed to Northern Ireland, or when we see that it has enabled fuel duty to be reduced, which has also taken flight business away from the Province. So, we bail them out and then they use that to our disadvantage. Why should we doubly

lose out—through access to European funds, along with increased competition for our business in Northern Ireland within the United Kingdom—when the eurozone fund should have been responsible for bailing Ireland out all along?

Photo of Ian Davidson

Ian Davidson (Glasgow South West, Labour)

That point is of significance to Scotland as well, because the pressure from Northern Ireland to reduce its corporation tax to compete with the Irish Republic is being replicated in Scotland. Does the hon. Gentleman have any idea why this Government are using British taxpayers’ money to fund an opportunity for the Irish Republic to undercut us on corporation tax in that way and thereby cannibalise British revenues?

Photo of Jim Shannon

Jim Shannon (Shadow DUP Spokesperson (Health); Strangford, DUP)

The hon. Gentleman makes an appropriate intervention. We in Northern Ireland certainly do bear the brunt of that, and we feel the pain more than most, as does Scotland. Perhaps when the Minister responds we will get an idea of exactly why that has happened.

The second example is from Iceland—there is more than one cloud hanging over Iceland, by the way—and the second referendum there. Iceland rejected a proposed deal to repay €4 billion that Britain and Holland spent in 2008 to reimburse savers hit when Iceland’s banks collapsed. Meanwhile, I am hearing complaints from my constituents about the amount of fish that fishermen can catch and the number of days that they can work being restricted by EU legislation, as opposed to the Icelandic raiders—they are certainly not an ice hockey team—who are sweeping in, despite Euro-protests, and fishing mackerel that belong to our fishermen. Those are just two simple examples of the failure of the bail-out system in Europe. It is passed the time that this be brought to a head and we ensure fairness for all in Europe.

Mark Reckless has stated that the legality of the EFSM is called into question by the current wording of the treaties, which must be changed accordingly. That is exactly the issue that we are trying to address. Therefore, the answer is very clear: use the upcoming meeting of the Council of Ministers or the European Council to vote against the continued use of the EFSM unless a eurozone-only arrangement that relieves the UK of liability under the EFSM has been agreed.

For far too long we have slavishly followed the dictates of Europe, throwing pound after pound into that deep hole that is Brussels and awaiting some kind of recompense for doing things the right way. For too long we have watched other countries prosper—and not too far away from us, either—with bail-out funding, while we cut funding to schools, hospitals and infrastructure in order to remain solvent and claw our way back to a sound financial footing. Everyone in the Chamber today will be able to give examples of that from their constituencies. For too long we have paid in while watching our farmers and fishermen flounder under the weight of European dictates, at the same time as we watch other nations flout the very same rules that our officials seem to have an almost evangelical zeal in enforcing. Indeed, we have been fined £60 million in Northern Ireland for mistakes in bureaucracy and forms that have been filled in.

We need to assert ourselves by saying to the EU that we will no longer be Europe’s nodding dog, making do with a pat on the head every now and again, as if that is

okay. We more than pay our way. Others must be held to the dictates that we adhere to. That should start with the matter of this funding and how it is used. I fully support the motion and urge every Member here today—those who embrace Europe and those who oppose it alike—to state that from now on we will make a better job of what is currently a bad job and demand our rights as a member state, beginning with the right to exclude ourselves from the euro without paying for it through the back door.

2:26 pm
Photo of Stephen Williams

Stephen Williams (Bristol West, Liberal Democrat)

The background to this debate is the extreme financial turbulence that took place all around the European Union—and, indeed, around the world—in 2008. Since then, the vast majority of EU member states have become stable. They are growing and have deficit reduction plans in place. It is also important to recognise—I am quite surprised that no one from the Government Benches has said this yet—that the UK has not needed assistance from the IMF nor from the European financial stability mechanism, which we theoretically could have called on from our fellow EU member states, or indeed any bilateral assistance, precisely because the coalition Government have put in place a realistic deficit reduction plan to put our finances on to an even keel. However, other EU member states are still struggling and have needed that international assistance—I refer, of course, to Greece, Portugal and Ireland. Today’s debate is concerned with European Union assistance, but we should remember that many fellow member states have also needed IMF support and bilateral loans, from us and other member states.

Photo of Graham Stringer

Graham Stringer (Blackley and Broughton, Labour)

Is not the reason why Greece, Portugal and Ireland have needed money that they cannot alter their exchange rates or control their interest rates because they are in the euro? Some of those countries are cutting even faster than this Government, and it is not helping. The answer to those countries’ problems is to get out of the euro and return to their old currencies.

Photo of Stephen Williams

Stephen Williams (Bristol West, Liberal Democrat)

I thank the hon. Gentleman for his intervention. I suspect that I may be alone in the Chamber—at least on this side of the Chamber—in being for the euro. I believe that Britain could have benefited from joining back in 1999, but I none the less recognise that the coalition agreement contains a strong statement on how that is simply not up for discussion during the course of this Parliament. I would therefore agree to differ with the hon. Gentleman. Surely one of the reasons why the three states that he mentioned are unable to deliver deficit reduction is not just their membership of the euro, but the fact that their Governments have not been as willing as this Government to take the necessary painful medicine to put themselves back on an even keel.

We have, of course, made bilateral loans as well, recognising that, as Joseph Johnson said earlier, it is in our own selfish national interest to support our fellow EU member states. Many of those points were made last year in the debates on the Loans to Ireland Act 2010. One statistic, which I thought was implausible when I first heard it—I

have now heard it so many times that it must be true—is that Ireland is more significant to our trade than China, India and Brazil, so it is indeed in our national interest to continue to support Ireland.

Photo of Henry Smith

Henry Smith (Crawley, Conservative)

My hon. Friend talks about our bilateral and multilateral arrangements. Surely it is in this country’s interest to be flexible and not to get locked into multilateral arrangements, but to have the freedom to make bilateral arrangements when it is in our national interest to do so.

Photo of Stephen Williams

Stephen Williams (Bristol West, Liberal Democrat)

I thank my hon. Friend for that intervention. He is right to say that we need flexibility. Because we are not in the euro, we are not a participant in the far greater funding of the facility. I think that the figure involved is €400 billion. Our exposure is therefore quite limited.

That leads me on to my next point. The loan to Ireland involves about €7 billion, which is roughly equivalent to the maximum theoretical exposure of the United Kingdom to the loans that we have participated in under the European financial stability mechanism. So what is the cost to the UK? I have already mentioned our IMF and bilateral loan contributions, which we make irrespective of our EU or euro membership. We are outside the EFSM, as I have said, and our EFSM contribution is restricted to the UK share of the European Union budget, which is roughly 12.5%. Our total theoretical exposure is therefore about €7.5 billion, which is roughly equivalent to the bilateral loan that we have decided, of our own volition, to give to our close friend and neighbour, Ireland.

Our contribution to those loans—I emphasise that they are loans—is at risk only if there is a default on the part of the member states receiving them. It is the expectation, when loans are made in the ordinary course of business, and certainly between nation states, that they will be repaid without default, and that they will be repaid with interest. If Ireland and Portugal repay those loans in a timely manner and with interest—the interest rate is quite a hefty one—it will be important to ensure that the interest is credited back to the United Kingdom.

A real cost would be incurred if we did not support our fellow EU member states, which are, after all, our closest trading partners. It would simply not be in the UK’s national interest to watch the eurozone fail and even break up, as I suspect some of my coalition colleagues would like it to do. The resulting massive instability among our closest trading partners on our doorstep would not be in our national interest. I plead with the ministerial team to make the case more strongly on behalf of the Government that UK assistance at this time is in the British national interest, and that it is not merely the result of some philosophical commitment to the European Union, whether by the Liberal Democrats—whom I heard being blamed earlier—or by anyone else. Indeed, if we were not making those contributions via the European financial stability mechanism, it is possible that we would be making higher bilateral contributions or having a higher call on our funds because of our treaty obligations relating to the IMF. It is also right, however, that any such support should be temporary, and that, from 2013, the eurozone should be able to wash its own face and support itself through the proposed new European stability mechanism. It will then be up to

Britain to decide whether it wishes to give bilateral assistance, when it is in our national interest to support our closest friends and neighbours.

2:33 pm
Photo of Kate Hoey

Kate Hoey (Vauxhall, Labour)

I want to contribute to the debate because it is often implied in the media and elsewhere that very few Labour Members are against what is happening in Europe. It is important to point out that millions of Labour voters would support the motion, and would like to see my party take an even stronger view on this issue.

I do not know the details of who signed up to what and when, but I am clear that if it was our Chancellor who did so, we should not have signed up to these arrangements. The new Government coming in should certainly have made it clear that they were a new Government and that they would look at the matter again. I appreciate that they are a coalition, but this should have had a high priority in the coalition agreement.

Photo of Graham Stringer

Graham Stringer (Blackley and Broughton, Labour)

I am following what my hon. Friend says, and I agree with her. The previous Government were out of tune with the electorate on Europe, as are this Government. Would it not be good to have a national debate on these issues, and a referendum on whether we should be in or out of the European Union?

Photo of Kate Hoey

Kate Hoey (Vauxhall, Labour)

Yes. I am a supporter of the People’s Pledge campaign, and any other campaign that I see on a referendum. I would like those campaigns to work together more.

Even in the House today, we are going to end up being unable to have a clear vote on this issue because of the way in which the procedure works and because of the way in which the Government—like previous Governments—are in a nice, cosy little group with all the pro-Europeans to ensure that we never have a real vote on these matters. I am not sure whether all those Members who have signed up to the Government’s amendment knew what they were signing up to. I cannot believe that they do not support the motion tabled by Mark Reckless. Looking at the amendment, we see that they accept the motion up to and including the point that the EFSM is “legally unsound”. If something is legally unsound, the Government should automatically oppose it. I am sure that the European Union will be quivering when it hears that the Government’s amendment proposes that the Government

“raise the issue of the EFSM at the next meeting of the Council of Ministers or the European Council; and supports any measures which would lead to an agreement for a Eurozone-only arrangement.”

Photo of Kate Hoey

Kate Hoey (Vauxhall, Labour)

I will not give way again.

Does anyone in the House really think that our Government would be listened to if they went along to the Council of Ministers and said that they were very concerned about this issue? They have not even managed to get Parliament to give a clear signal about what it thinks. They have fudged the vote today so that it will be pretty meaningless. This fudging on Europe goes on

all the time among the cosy establishment, and it makes people angry and frustrated, not only in the House but out in the country.

I recently asked the Foreign Secretary

“if he will have discussions at EU level on reducing the funding spent by the EU on publicity campaigns.”

This matter arose because the European Union has decided to put by even more of our money to ensure that ordinary people throughout the EU are told how wonderful the EU is. We are spending money directly on European Union propaganda. The answer came back from the Minister for Europe, and the first bit sounds great:

“While it is important for institutions such as the EU to communicate effectively…spend on this should be efficient, affordable and proportional. Funding levels for the EU to communicate its work publicly, as for all other EU activities, will be decided within the negotiations on the EU 2012 Budget. With those negotiations, this Government are seeking substantial reductions in spend and greater efficiency across all areas of the Budget.”—[Hansard, 23 May 2011; Vol. 528, c. 448W.]

Once again, fine words. The previous Government said exactly the same thing, but nothing ever changed. Nothing relating to the European Union ever changes. The sums of money involved never go down. We never pay less; we pay more and more.

With regard to what my hon. Friend Graham Stringer said, I believe that it is time for us to have this debate out there in the country. Let us stop being afraid of our constituents’ views, and listen to what many people out there want to say. This Government need to accept what the previous Government would never accept—namely, that we are here to stand up for our constituents and our country on this issue. It is about time that we started to say no to Europe, and to mean it.

2:39 pm
Photo of William Cash

William Cash (Stone, Conservative)

The Government amendment—they have not tabled it in their own name, but that is what it is, to a great extent—reflects badly on the integrity of the coalition. It has nothing whatever to do with the national interest. It also says a great deal about a commitment to Liberal Democrat ideology, and it is primarily about numbers. The Liberal Democrats, and certain elements in the Conservative party at a very high level, are quite prepared to allow further European integration. There are alternatives that would allow us to renegotiate the treaties and/or to say no, but they are simply not doing so.

Indeed, only a few days ago, the Prime Minister made it abundantly clear that the object of the coalition was to stabilise the economy. We understand that. The problem is that this is about numbers, not about principles or policy. There are many people in the Conservative party, outside and inside the House, who know that the arguments we are seeking to address in a reasonable fashion are in the interests of the country. There is no question about that; the press outside believe it as well. The bottom line is that those of us who have relentlessly pursued the issue of the eurozone bail-out and have tabled many questions have invariably received what could reasonably be described as somewhat evasive answers.

Why should the British taxpayer or British hospitals and schools in our constituencies in any way underwrite what goes on in Portugal, or indeed any other country in the eurozone, particularly in times of austerity? It is

nothing to do with the question, as suggested on a number of occasions, of qualified majority voting. This is completely contrary to the assertion made in reply to me today by the Financial Secretary. Article 122 is not compatible with the treaty and cannot possibly be used to support the European financial stability mechanism. Indeed, in their acquiescence, as shown in the amendment, the Government accept that the position is legally unsound. By saying that, they completely undermine their position. The Government know it and everyone knows it: it is not compatible with the treaty, and the Minister is wrong.

Photo of John Redwood

John Redwood (Wokingham, Conservative)

My hon. Friend makes a powerful legal point. Does he agree that what these states in trouble need is a work-out, not a bail-out? We do not give alcoholics more drink; we cure the alcoholism. We should not give the over-borrower more borrowing.

Photo of William Cash

William Cash (Stone, Conservative)

I could not agree more, and a course of Alcoholics Anonymous would not be out of place.

It is not just the European Scrutiny Committee that said the position was legally unsound or unlawful. Madame Lagarde herself, the prospective head of the IMF, said on this issue on 17 December:

“We violated all the rules because we wanted to close ranks and really rescue the eurozone.”

This is a stitch-up of the British people to maintain the so-called solidarity for further integration of a failing European project. That is what lies at the heart of the matter.

Why are people protesting and rioting all over Europe —in Madrid, Greece, Italy and the list is growing? What is not growing is the European economy and the reason is that the sort of policies needed—here and in all the other countries—to engender growth to deal with the deficit that the Government rightly say we have to address are impossible to achieve without generating the growth that is needed by repealing legislative burdens and generating policies that the integrationists in Europe simply refuse to allow. I would go further and say that the coalition in this country cannot achieve growth simply because the Liberal Democrats, as part of the coalition, have silenced the Prime Minister’s promise to repatriate burdens on business. It is called 56 votes and the keys to No. 10.

Photo of Jim Sheridan

Jim Sheridan (Paisley and Renfrewshire North, Labour)

The hon. Gentleman might have heard, as I did, the Liberal part of the coalition talking clearly about what might happen “if” these loans are repaid, which suggests some ambiguity and concern within the coalition Government about whether the loans will be repaid. He will also recall that when the Conservatives were in opposition, they opposed the bail-out of Northern Rock. What has changed between then and now?

Photo of William Cash

William Cash (Stone, Conservative)

Very simply, we now have a new coalition Government who have been seeking to achieve a reduction in the deficit, but they are not doing the accompanying things that are required in respect of the failing European project. That is the key problem. There are young people throughout Europe—and, for that matter, in this

country—who simply cannot get jobs because companies will not take them on as a result of European employment regulations and because the deficit in the public sector cannot be stabilised without reasonable tax revenues from the small business community, which is being deliberately destroyed by the refusal to repeal the burdens that strangle it.

In the meantime, Germany has had unit labour costs of a mere 2% on average over the last 10 years, whereas the average for the rest of the European member states is between 25% and 30%. It is an impossible situation, making it impossible for Europe—this entity that the integrationists believe in—to be able to compete with the BRIC countries. Germany invests in cheaper labour markets in Europe, with 67% of all its trade being with Europe, while 45% of all European trade with China is German.

The reality is that what we are debating today is symptomatic of a failure in the coalition Government’s strategy. We are not going to get out of this problem—I say this in all sincerity and in the great hope that people will listen at last—as long as we go on with this failing project. We will not get out of the mess. Today’s debate is an opportunity to get the issue straight. As Michael Stürmer, the chief correspondent of Die Welt argued, the dream is over and the Maastricht treaty has to be revised, but the coalition has no will to do so. The European bail-out of Portugal is a symptom of this deeper problem.

Photo of Claire Perry

Claire Perry (Devizes, Conservative)

Given my hon. Friend’s very pessimistic view of the outlook for the eurozone, which many of us share, does he not feel like giving just a tiny cheer that, thanks to the Chancellor’s efforts last December, we will take no further part in a permanent bail-out mechanism for Europe?

Photo of William Cash

William Cash (Stone, Conservative)

I did not say anything adverse about it at the time other than that the opportunity was not taken, despite advice I tried to give, to use the treaty opportunity to say to other member states that we would not agree to the treaty and would veto it unless we were taken out of the EFSM; we could then have brought forward the arrangements currently proposed for 2013. That proposition was eminently reasonable, eminently possible and €440 billion was available under the facility, which is in operation until 2013. In other words, the whole EFSM issue pivots on vanity and a determination not to unravel something that cries out for unravelling. It is not just; it is not right; it is completely irrational.

There are going to be further and deeper riots and protests. Worse still, I believe that the Government are contributing towards instability throughout Europe while claiming that within the time frame extending to 2013, bailing out the German and French banks—we should remember that that is what lies at the root of the problem—as well as Portugal and Greece will achieve stability. It will not. The argument is not only wrong, but totally—

2:48 pm
Photo of Austin Mitchell

Austin Mitchell (Great Grimsby, Labour)

I largely agree with the argument about the incompatibility of eurozone countries, as Mr Cash

outlined, although I do not agree with his defence of the Government. If we pay tribute to anybody it should be to the previous Chancellor and then Prime Minister, my right hon. Friend Mr Brown who, against great opposition from the Liberal Democrats and from sections of the Labour party, kept us out of the euro and avoided the consequences that have fallen on the eurozone states that are now in need of support and finance.

I do not think that Stephen Williams should feel uncomfortable about his lonely defence of the euro as he sits there like an Amplex advert on two empty Benches—because nobody wants to sit with somebody who is going to defend the euro in his kind of fashion—as the Liberal party policy has always been, “My euro right or wrong.” I can well remember, as can many others, the exchange rate mechanism crisis. Just as the ERM was about to collapse, there were the Liberals chanting, “Move to the narrower bands now” in unison with a lemming-like folly, which the hon. Gentleman demonstrated again today. He should not worry about this peculiar position; he should say with triumph that the Liberal Democrats have persuaded the coalition into accepting and financing these bail-outs. It is not a small sum. He mentioned a liability for £7.5 billion—this from a Government who are cutting Sure Start children’s centres and police budgets and who cannot afford anything for beneficiaries in this country, yet who are prepared to back a bail-out that could cost us £7.5 billion.

To have persuaded the cautious Conservatives, who have always been rather sceptical about Europe, to accept that position must be a triumph for the Liberal Democrats, in which I think they should rejoice. It is a demonstration of the impossibility of the eurozone’s working. What we are being asked to do today is pay for the consequences of the fact that it could never have worked because it brings together incompatible economies. It brings together the southern economies, which are frankly uncompetitive, and many of which are close to defaulting in any case, and the powerful German economy, where inflation is kept very low by agreement between the two sections of industry, continuous investment and continuous improvement.

The southern economies, which have higher rates of inflation and lower rates of productivity, can never keep up. The gap therefore widens, and Germany comes more and more to dominate the European economy, to a point at which the others must deflate to clear the deficits caused by their balance of trade with Germany. That is the incompatibility with which we are dealing, and that is the cause of the problems of the southern states in which we are being asked to involve ourselves—although we kept out of the euro, in the face of some derision from the Liberal Democrats and, indeed, liberal opinion in the country as a whole.

We kept out, so why should we be responsible for the failures implicit in the euro? There are only two possibilities for the countries that are now failing and needing help or the ability to default. They can deflate, which they are being asked to do to a degree that is impossible for their electors to accept, or they can get someone to write off their debts, a strategy mentioned by Mark Reckless. They cannot do what France and Italy did for many years when they became uncompetitive and their balance of payments deficits built up, and simply devalue. Such

action was precluded first by the European exchange rate mechanism, which broke up because it became impossible, and it is certainly precluded now by the euro. These failing countries can have no recourse to either reducing interest rates or accepting adjustments to the exchange rate, as this country has done, and they have therefore moved towards a crisis.

I cannot conceive why we—having kept out of the euro and warned of the consequences of joining the euro, and having drawn attention to what was implicit in a system that brought together incompatible states with different rates of productivity and competitiveness and with no central mechanism to redistribute or help them with their difficulties—should be asked to contribute to the bail-outs, and I therefore strongly support the motion. I cannot see what the sob sisters who tabled the amendment have to offer by saying, “Let us talk about it later.” Let us talk about it now, because the House must be the master of its own destinies and the country’s destinies.

This cannot be left to a Government who, in European matters, are always facing the threat of the tar baby. One contact with the euro, and countries are dragged in; one contact with Europe, and they are dragged endlessly into further and further commitments to a line that is impossible to hold. We should say in the Chamber today, “We cannot hold this line. We will not help to hold this line. It is not our problem.”

Several hon. Members:

rose —

Photo of Lindsay Hoyle

Lindsay Hoyle (Chairman of Ways and Means; Chorley, Labour)

Order. We are running out of time very quickly, and I want to enable as many Members as possible to speak. We need to hear about the amendment, so I now call Chris Heaton-Harris. If there are fewer interventions and Members do not use all their allotted time, we shall do very well and get much lower down the list.

2:54 pm
Photo of Chris Heaton-Harris

Chris Heaton-Harris (Daventry, Conservative)

I beg to move an amendment, to leave out from ‘unsound’
to the end of the Question and add:

‘urges the Government to raise the issue of the EFSM at the next meeting of the Council of Ministers or the European Council;
and supports any measures which would lead to an agreement for a Eurozone-only arrangement.’.

As you have made amply clear, Mr Deputy Speaker, we do not have much time. I therefore intend to confine my remarks to the subjects raised in my amendment and to the politics behind it.

The motion argues that there is no legal base for making EU money available for bail-outs. It questions the idea that the natural disasters clause can be used to justify using EU funds to pay the countries concerned. Let me say at the outset that the amendment does not touch the very important line in the original motion that states that the European Scrutiny Committee, of which I am a member,

“has stated its view that the EFSM is legally unsound.”

Let me now deal with some of the politics of today, which were observed by Kate Hoey.

Photo of David Nuttall

David Nuttall (Bury North, Conservative)

Was not that line left in the motion because it is a fact—which there is no point in denying—that the European Scrutiny Committee stated that the European financial stability mechanism was legally unsound?

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Chris Heaton-Harris (Daventry, Conservative)

I shall come to that point directly.

Members on both sides of the House know that the Government would not have accepted the motion tabled by my hon. Friend Mark Reckless, and that if we were to vote on the original text it would be probably be defeated, and the House would be left without a view on this matter. My amendment, which I should like to think has a good chance of being passed, would enable the House to adopt the words of the European Scrutiny Committee.

I believe that the legality of the EFSM, and indeed that of the European financial stability facility—the EFSF—has been questioned in relation to the EU treaty’s “no bail-out” clause, which states that the EU and member states

“shall not be liable for or assume the commitments of”

other member states.

Photo of Anne Main

Anne Main (St Albans, Conservative)

I appreciate that my hon. Friend was trying to be helpful, but his amendment seems deeply unhelpful to those who wanted the strength of the original motion to be negated, and to have been able to vote on it.

Photo of Chris Heaton-Harris

Chris Heaton-Harris (Daventry, Conservative)

I will say more about the politics later in my speech. In any event, I believe that if either my amendment or the original motion is passed, the House of Commons will be the first member state Parliament to question formally the legality of the stability mechanism.

The remaining part of my amendment involves a fairly academic argument. Does any Member in the House truly believe that, with the Greek economy running out of cash, market fears that the eurozone contagion will spread and reveal itself at the heart of the Spanish and Italian economies, and the continuing problems in Ireland and Portugal, this matter was not going to be up-front and central at the next meeting of the Council of Ministers or the European Council? I should like to think that those problems are not only the first item on the agenda for such meetings, but being discussed every day throughout the Governments of Europe.

Bail-outs have become what they were always going to be: politically toxic, not only for those who provide the cash—the local election results in Bremen at the weekend underlined that—but, much more, for the Governments of the countries receiving the money, who have to introduce economic measures that are politically unpalatable to the people, as so many Spanish socialists found last weekend. Whatever senior advisers of Governments across Europe may think, the markets have already decided—and I consider it to be a matter of fact—that the Greek bail-out has not worked and will be renegotiated.

What I believe my hon. Friend for the Member Rochester and Strood is after is a vote that will prevent us from providing any more money for these bail-outs through the EFSM. Alas, although the UK could vote

against any proposal presented—and I should like to think that it would—the simple fact is that because of the disastrous advice given to the former Chancellor of the Exchequer and the consequent actions that he took at meetings on 9 and 10 May last year as the previous Government were leaving office, the UK entered the mechanism. Moreover, the Council decides on these matters now, and will do so in the future, by means of qualified majority voting.

Photo of George Freeman

George Freeman (Mid Norfolk, Conservative)

Does my hon. Friend not agree that when the Conservatives were last in office they established a firm veto in precisely this context? That veto was given away in 2001 by the Labour party, and the present Government are now being forced to implement a decision that was sneaked through by Labour in the dying days of its Government.

Photo of Chris Heaton-Harris

Chris Heaton-Harris (Daventry, Conservative)

Absolutely—and let me make it perfectly clear that, thanks to what Labour did a year ago as it was leaving office, the EU cannot veto the grant of an EU loan or credit line extended via the European financial stability mechanism.

Photo of Kate Hoey

Kate Hoey (Vauxhall, Labour)

The hon. Gentleman can say what he likes about why we cannot do this and cannot do that, but does he not accept that the people of this country do not care which party did what? They want us to veto this now, and if we cannot do so, we should simply not pay.

Photo of Chris Heaton-Harris

Chris Heaton-Harris (Daventry, Conservative)

I should love to agree with the hon. Lady on that—so I will.

Photo of Jacob Rees-Mogg

Jacob Rees-Mogg (North East Somerset, Conservative)

Is there anything to prevent us from requiring the European Court of Justice to rule on whether this use of the mechanism is legal?

Photo of Chris Heaton-Harris

Chris Heaton-Harris (Daventry, Conservative)

I honestly do not think so.

In the most basic terms, voting for the original motion will not mean that we are no longer liable to contribute to bail-outs via the EFSM. Worse than that—as I have said—because the Government signalled they were not likely to accept the original motion, it would in all likelihood have fallen, and therefore, far from this House having put its foot down, it would not have had a view at all. My amendment merely recognises that reality. It does not build up false hope that we can simply stop being involved in these matters, but it does send a message to Government that I hope will be reflected in the ongoing debates on them: that this House wants there to be a eurozone-only arrangement in the future.

Too regularly in this place and elsewhere, those of us who question various aspects of our relationship with the European Union march our supporters to the top of the hill only to find that we are outnumbered and outfoxed, and are then valiantly and gloriously defeated. We need to get real.

Photo of Richard Drax

Richard Drax (South Dorset, Conservative)

Perhaps we are led to the top of the hill and then let down by parliamentarians who do not have the guts to stand up for their country.

Photo of Chris Heaton-Harris

Chris Heaton-Harris (Daventry, Conservative)

My hon. Friend could, perhaps, say that, but he would obviously have to have a good 10-year track record of actually standing up for this country in a different Parliament somewhere else.

The economics of our time is proving us right. It is time we changed tactics, and time we learned from the past. Let us win the arguments we can, bank the result and push forward. I am sure that those on the Treasury Bench have noted the feeling of the House on this matter. I would like to think they understand that we expect the Government to play all the cards they are dealt in negotiations with our European partners, and I would remind them of how much cross-party support they have for their negotiations on the next EU financial framework for 2014-2020. We have a veto on that matter, and are expecting great things.

My endgame is to spare the UK the costs of these bail-outs, leaving them as a proper matter for the euroland countries. I intend to press this amendment—tabled in my name and those of more than 50 other Members—to the vote.

3:02 pm
Photo of Ian Davidson

Ian Davidson (Glasgow South West, Labour)

The wider question we need to address is why it appears that this Government are consistently going soft on the European Union. When they were elected, the impression was given that they were going to be much tougher on Europe than the previous Government had been, and I welcomed that different position, on that issue if on no other. I welcomed the fact that the Conservatives gave the impression they were going to stand up to Europe much more than the previous Government, and that they were going to seek opportunities not only to repatriate powers but to reduce the amount of money we give to the EU and to pursue all possible ways to clip the European Commission’s wings. Why, therefore, has it come to pass that they seem to be simply acquiescing in so much that goes on in the EU?

I do not for a moment accept that the current Government should be allowed to hide behind the playground argument that a big boy did it and then ran away. I accept that the previous Government were not without fault in this matter, but simply to say that they did it so there is absolutely nothing whatever we can do about it now is not acceptable. To their credit politically, this Government have said in respect of a whole number of policy areas that they wish to reverse the previous Government’s line, and they are taking steps to do so. Where they believe it is important, they have taken steps to undo the previous Government’s work—and I oppose what they have done—yet in this area they seem unwilling to do so. I simply do not understand that, unless they have struck a secret deal with the Liberals whereby the Liberal tail is wagging the Conservative dog.

Today’s debate appears to be largely a row among Tory Eurosceptics, with the provisional wing arguing against the official wing. I cannot accept that people I have heard speaking in a Eurosceptic fashion on other issues seriously believe that the Brussels bureaucrats are going to be terrified by the prospect of the British Government raising the issue—I can just see them running off into the bars to have a stiff drink in fear lest this issue be raised! Goodness me, if the drafters of this amendment had been serious they might have said that they urged the Government to “Stamp their foot on the floor if they do not get their way,” or “Write rude words

on the toilet wall if nobody pays any attention,” because that would have much the same impact. This is a bit like a child in the classroom threatening to hold their breath until they are sick unless teacher gives them an apple. It is weak and miserable, and smacks of the Yosser Hughes phrase, “Gissa job.”

Those who drafted and signed the amendment have been far too easily bought off by the Government Whips. Perhaps some among them are deluded, but perhaps the others have set their price too low. If Members show our party Whips that we are prepared to be resolute, even though they might have told us that their current offer—or bribe—is the only one available, they will ultimately find another that might be more to our liking.

We must recognise that the eurozone’s problems are economic manifestations of political problems. The eurozone—its creation and membership—is clearly a political construct, and the admission of Greece was politically, rather than economically, decided. I think we all know that the Greeks lied about their economy in order to get into the eurozone. The problems that have now arisen have not come out of a clear blue sky; not only were they predictable, they were predicted. It was predicted that these problems would arise. Therefore, those who are now running about like headless chickens pretending it is all the fault of bad snow, leaves on the line, sunspots and other events that could not possibly have been foreseen, are doing themselves and this House a disservice. We must recognise that these are political issues that have to be handled in a political fashion.

I recognise that we have an economic interest in the well-being of the eurozone, but the Liberal position seems to be that because this is a political construct they wish to support, we have to keep shovelling in money regardless of how much it costs. I agree with those who say that we have spent enough and we must spend no more. I certainly agree with the position of the previous speaker, who seemed to be saying that we are looking for great things from this Government in terms of freezing or reducing the overall level of the EU budget. This debate should be a prelude to that argument that we must have. We should be taking a robust and vigorous line on this, in order to ensure that there are no concessions on the EU budget.

I will vote with whoever I think is most extreme on this matter. It seems to me that that is the only way we can gain Europe’s attention. Simply threatening to stamp our feet and indicate our displeasure will be brushed aside, as will simply acquiescing in the Government Whips’ bidding. This is an issue on which we must vote extremist, so that the UK Independence party does not come and get many of the Members on the Government Benches.

3:08 pm
Photo of Douglas Carswell

Douglas Carswell (Clacton, Conservative)

We are told that the Government’s priority is to cut the deficit, and rightly so—but why, therefore, are we assuming the vast liabilities of other countries? Having struggled for the past year to cut £6.2 billion from our public spending, why do we sign up to bail-out commitments twice as great, all in order to bail out a currency we chose not to join? We have been told that the bail-outs are to help our friends, but since when do we help a friend in debt by pressing upon them a high-interest loan? A year of bail-outs has not removed the debt burden from our neighbours and friends; it has merely increased it.

We have endlessly been told that by bailing out the countries in question we are rescuing the people of Ireland, Portugal and elsewhere. I am not sure that the people of those countries quite see those bail-outs as such a salvation. Like the people of Argentina a decade ago, they increasingly recognise that their economic well-being is being sacrificed by politicians in pursuit of grandiose dreams of monetary union. We have heard how these bail-outs will buy time, but time for what? Are they buying time for the bondholders to pass the weight of their losses on to the shoulders of taxpayers? Ministers have sought to reassure us that UK liabilities for the bail-outs will be limited until 2013, but we need to look at the sheer volume of debt that needs to be rolled over in the affected countries in the next 18 months —limiting our liabilities until 2013 is little comfort to those who care to look at the maths.

We have been told that Britain will get this money back, yet at the very moment that Greece hovers on default we proceed to lend £4.2 billion to Portugal. We have also been told that there is something unavoidable about the bail-outs. It is supposedly a deal struck by the former Chancellor at the ECOFIN meeting on 8 May last year, but I can find no evidence to suggest that we sought to challenge it in the ECOFIN meeting in the week that followed. If Ministers were really reluctant participants in the stabilisation mechanism, why did the Economic Secretary to the Treasury write on 18 July last year:

“While these decisions were taken by the previous government, this Government judges them to be an appropriate response to the crisis.”?

That does not sit entirely comfortably with the idea of Government reluctance to join in the bail-outs. If this Government were reluctant about the deal that they claim they inherited, why are we promoting the senior official behind it to be the next ambassador to Brussels?

We have sat here for too long listening to what Ministers tell us. We have been fed too many bogus assurances and too many reasons that have turned out to be excuses. The bail-outs are not only ruinous and quite possibly illegal; they are indefensible. They mean that although we may not be in the euro as a currency union, we have been dragged into it as a debt union. It is not enough simply to listen to further assurances given from the Dispatch Box as Ministers regurgitate what officials permit them to say. This House needs to instruct the Government to act. It is not time for spoiler amendments designed to stop short of instructing the Government to act. It is not time for carefully calibrated wordplay intended to create the illusion of opposition to the bail-out when such opposition does not exist. There is only one way to vote today to halt the haemorrhaging of our cash. I urge colleagues to support the motion in the Lobby, and to reject the Whips’ efforts to water it down with this disgraceful amendment.

3:12 pm
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Michael Connarty (Linlithgow and East Falkirk, Labour)

I am pleased to follow Mr Carswell, because he talked about something that should be discussed more in this place: the plight of the people who are suffering problems because of their own Government’s mismanagement. My Eurosceptic colleagues

on the Labour Benches are still against the common market—they are not really against the European Union as such—whereas the Eurosceptics on the Government Benches are, honourably, against the EU as a project. As they know, the problem I have with this whole debate is that all these manifestations have nothing to do with our being in the eurozone; they are to do with the failure of Governments to use the money that they had available, their own economic powers and the money made available to them by the EU in their period of transition into the EU to do the right things and invest correctly in the skills of their people and in the supply side of their economy, rather than spending the money on large economic projects.

For example, when we go on a cheap holiday to Portugal we can drive on excellent motorways directly from the airport to the place where we will lie in the sun, and the hotels and large boulevards will have been paid for by EU money. However, the young people of that country fail to get a decent education, proper skills and university places. The reality of these countries is that they have under-invested in their own people. That criticism cannot be levelled at the UK.

The eurozone offers these countries a way out of their dilemma that, as a socialist, I do not particularly find attractive; they will be asked to cut further their budgets, which should be invested in their social infrastructure and the supply side of their economy. That will cause them great harm, but that offer will be made to them by the International Monetary Fund, the World Bank and so on because it is the capitalist model. That model says, “When you are in trouble, slash your budgets in the public sector.” Now, where have I heard that before? I have heard it from those on the Government Front Bench and from every Government Back Bencher. They have been told that every time they get up they should use the mantra about how they have to slash and burn the economy of this country—thus denying the young people of this country the chance to look for a better future—because of the problem of debt.

That situation will be the consequence for Greece, Portugal and Ireland. It is what is happening in Ireland, and the young people in Spain are worried that it will happen to them. That country is a good example of a place where major infrastructure projects have been financed by the EU and the supply side of the economy has been run down. I have met many young people in Spain who say, “It was easy to leave school at 16 and get a job building houses, but nobody can afford to buy them now. It was good money, the sun was shining and everything was going to be fine.” Suddenly, these people find that they have no skills, no jobs and no future.

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Michael Connarty (Linlithgow and East Falkirk, Labour)

I will give way in a moment.

Everything I am discussing is the consequence of the things that the Governments of these countries did; this was not about the EU being in existence and not about their being members of the eurozone. These things were done by those Governments. The offer is that the IMF, the World Bank and the eurozone countries, mainly, will bail out those countries.

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Michael Connarty (Linlithgow and East Falkirk, Labour)

I am about to give way to Mr Redwood. A small part of the bail-out will be a fund, to which we have signed up, that will give a loan to those countries to help them to get over this unattractive prospect of having to face down their own people and cut their own services because of the lack of good Government management, so that they can be bailed out.

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John Redwood (Wokingham, Conservative)

Does the hon. Gentleman not see that these countries are locked into a currency at a rate that makes them completely uncompetitive, which is why they have mass unemployment and why lending them money does not get them out of the mess?

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Michael Connarty (Linlithgow and East Falkirk, Labour)

I do not see that. What the right hon. Gentleman says may be a good indicator of where this debate is coming from. This is not about the European mechanism; this is about wanting to destroy the euro, to see it bust and to see it fail. If that is what it is about, people should stand up and say so; they should not lie to the people of the UK or mislead them by saying that it is about something else. People should be told the truth. I know that some Labour Members would certainly like to see the European monetary project and the euro completely collapse. If that is the agenda of Members on the Government Benches, they should say so.

The prospect I was describing is not one that I find attractive. In the modern world economy we clearly need to have a large trade bloc, probably united in some way around a monetary discipline, that faces down the problems coming from the United States of America, which is in the most unbelievable debt to the rest of the world. That country is run on the basis of its economy always being indebted to other countries. What will come from China and from Africa? That is part of this whole issue, and I hope that one day we will have the courage to move into that area, but what we are talking about is a very small loan of £4 billion, which will come back to the people of this country eventually when these countries are resettled in a new economic environment.

We hear hon. Members go on and on as if they are doing something wonderful in defending the UK, but they are not. We are talking about “beggar your neighbour” politics here and I am not prepared to vote for that. I applaud the Government for being honest and sincere about the fact that this European project either collapses or it is supported by all of us in different ways. I believe that the interest of the people of the UK lies in maintaining the eurozone and the euro, and helping countries when they fall into indebtedness. I hope that the Government will persuade hon. Members to reject the proposals before them.

3:18 pm
Photo of Margot James

Margot James (Stourbridge, Conservative)

I wish to preface my remarks by acknowledging the hard work and bitter battles engaged in by so many members of my party, several of whom are in the Chamber today, that resulted in the freedom that our country enjoys in not being part of the euro. That the euro has proved such a disastrous policy for members of the eurozone is evident to all. The improvements to our trade balances and the growth in our exports this year would not have been possible without the devaluation of sterling. The recovery of our manufacturing sector and the stabilisation of employment

figures have been facilitated by the low interest rates that the UK, unconstrained by membership of the euro, has been free to pursue.

I share the view, in principle, that as we are not part of the eurozone we should not be bound by its bail-out commitments. That principle has, I believe, been upheld by our Government, but our Government cannot undo the commitments set in stone by the previous Government. The die was cast at the ECOFIN meeting last May when the UK agreed to the creation of the €60 billion European financial stability mechanism. That placed an obligation on the UK to underwrite emergency loans to crisis-hit member states.

Photo of William Cash

William Cash (Stone, Conservative)

I do not want to interrupt my hon. Friend’s flow, but it was open to the Government to challenge the issue before the European Court and they did not do so. It was open to them to say that they would veto the treaty unless we had an unravelling of the EFSM, but they chose not to do so. They went for integration, not for dealing with the situation.

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Margot James (Stourbridge, Conservative)

I thank my hon. Friend for his intervention, but I shall proceed to make the point that it is no good dwelling on what our Government should or should not have done and whether the former Chancellor should have committed the UK to the EFSM. The point is that the Labour Government signed up to the Nice treaty way back and gave away our veto on the costly European bail-out funds. The decision to establish the EFSM was therefore subject to qualified majority voting and would have been passed. I am not convinced that there is any basis in law to challenge that decision.

The other question raised by the motion concerns whether the loans granted under the EFSM are being granted correctly given the requirement that they should be made in conjunction with the IMF and the other much larger European financial stability facility, in which Britain, thanks to our Government, has no obligation. Under the terms of the proposed loan to Portugal, those three sources of finance share the commitment equally. If there is evidence that the EFSM is bearing a disproportionate load compared with the other two sources of finance, the Government should raise that at the next meeting of the Council of Ministers or the European Council. I cannot see any argument with that.

I contend that the situation facing Europe is so dire and potentially calamitous that we might well look back at this time and conclude that being up for a proportion of the loans distributed by just the EFSM, commensurate with our share of the European budget, was the least of our problems. The Government are to be congratulated on securing a complete withdrawal from Britain’s liability from 2013 and a very tight cap on anything we might have to underwrite between now and then—something akin to just 1% or 2% of the potential total bail-out loan facilities that might be called on by the eurozone countries. I will therefore support the amendment to the motion proposed by my hon. Friend Chris Heaton-Harris.

3:23 pm
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Claire Perry (Devizes, Conservative)

I speak with some trepidation from the depths of the Maastricht maestros on the Government Benches. If I may echo the point

made by my hon. Friend Margot James, it is a tribute to many people, surrounding me today and not in the House, that we are no longer part of the euro and that we have been able to establish a healthy Euroscepticism both in opposition and since we came into government.

Let me go back in history to see how we reached this sorry state of affairs. Many Members will remember the debates around the time of the Nice treaty in 2001. Indeed, there are Ministers on our Benches today who urged the Government of the time in the strongest possible terms not to sign up to the treaty as they believed it would give away any future veto on bail-out mechanisms. We were assured at that time by the then Minister for Europe that article 103 made it clear that there would be no bailing out of member states, whether that meant Britain or any other member state. I question whether the Minister for Europe at that point knew what was being done.

In May 2010, the acting Chancellor of the Exchequer signed Britain’s commitment to the temporary European financial stability mechanism. Our total commitment is 12.5% of the putative total of €60 billion—€7.5 billion, a substantial sum. Later, I shall address what that means for hard-pressed British taxpayers. First, let me move the timeline further forward one step to December 2010. As has been said several times, the Conservative Chancellor of the Exchequer agreed that Britain would play no further role in a permanent European bail-out facility and also fought for and had implemented a number of stringent requirements for draw-downs from the existing facility.

What will this facility cost the taxpayer? As my hon. Friend Joseph Johnson said earlier, it is a contingent liability. A number of things must happen before there is any cash bail-out. The entire thing has to go belly up and the countries all have to default. Given that our ranking on this debt is pari passu with the facilities put in place by the IMF, we will have a superior credit position and will be paid first in the unlikely event that there is a partial or full default. It is not a gift or a grant but a contingent liability of €7.5 billion, of which approximately €1.2 billion has been put into the facility to date. The suggestions we often hear from Members on the Government Benches that hard-pressed taxpayers will see further cuts to public services or will not see the schools, hospitals or road repairs that they have been promised are simply fiction. It is not the case.

This amount is a proportion of the EU budget and the budget is agreed for this year, so the liability is capped at this level. There is no further liability under the facility. What is the “so what” of this point? It is my belief that the action of this Government’s Chancellor has stopped Britain further sleepwalking into handouts, bail-outs, gifts or grants to the European Union. This fund is a eurozone experiment about which we have many concerns and I share the concerns that have been eloquently raised by Government Members about the long-term future direction of countries that are hamstrung by the tightness of their currency conditions and the overall problems with their economies.

A Conservative Chancellor argued for tough conditions and pari passu rating with IMF debt for this facility, the only facility in which we have involvement. If hon.

Members consider the conditions under which a country can access the facility, they will see that extremely tight conditions must be met and plans must be made. Although the situation is not ideal, the Government have done far more than the previous Government to put a stop to such developments—in fact, they have done the opposite of what that Government did for 13 years. The point that has been made about fighting to ensure that there is equal draw-down from the facility is right and I believe that the amendment also calls for that.

I urge Members on both sides of the House to stop this Eurosceptic scaremongering, to focus on the facts of the debate and to ensure that we collectively never again sign our country up to the sort of bail-out mechanisms and removal of vetoes with which the previous Government left us.

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Lindsay Hoyle (Chairman of Ways and Means; Chorley, Labour)

I call Andrea Leadsom. You have two minutes before the Front-Bench wind-ups.

3:28 pm
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Andrea Leadsom (South Northamptonshire, Conservative)

I stand here as a big fan of Europe but a big enemy of the European Union, and I want to share a few of my passions with you, Mr Deputy Speaker. First, I want to share my anger at the Opposition for their failure to give us the referendum on the Lisbon treaty that they promised. I also want to share my fury at the former Chancellor for signing us up to the EFSM that has caused so many problems—the reason we are having this debate. Finally, I would like to share my gratitude to the former Prime Minister for not taking us into the euro.

I want to spend a moment talking about our friends the Europeans who find themselves in an extraordinarily difficult position. At the moment, 10-year Government bonds in Portugal are trading at around 64 cents in the euro, while in Ireland they are trading at around 66. In Greece they are trading at around 51—that is about 51 cents in the euro for Greek 10-year Government bonds—which basically means that when our European friends have to lend them money, as they will undoubtedly have to do, it will effectively be half a gift and half a loan. We in this country are extraordinarily lucky that our Front Benchers have enabled us to withdraw entirely from the bail-out mechanism from June 2013. We should praise the Prime Minister and the Chancellor for arranging matters so that we will not, over the longer term, have to suffer the price that will undoubtedly be the case for our European friends.

3:30 pm
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Christopher Leslie (Nottingham East, Labour)

May I pay tribute to Mark Reckless for securing this important debate? This is one of those occasions that make me think that there are not just two parties in the coalition.

We need to clarify some of the history to this issue because I get the impression that certain hon. Members are labouring under a false set of impressions about the European financial stabilisation mechanism. Of course there were the ECOFIN meetings of 9 and 10 May at which the EFSM was agreed to as part of the package of measures to maintain financial stability across Europe.

It was against that backdrop that my right hon. Friend Mr Darling, the former Chancellor of the Exchequer, consulted both the current Chancellor and the Business Secretary, and cross-party consensus had been gained. Those are not my words but those of the Economic Secretary to the Treasury. The explanatory memorandum that she signed on 15 July 2010 in her own fair hand—Justine Greening, Economic Secretary—says those words:

“cross-party consensus had been gained.”

I know it is convenient for Ministers and some hon. Members to rewrite history and to give a partial account of what happened and about these important facts, but there it is in writing. [ Interruption. ] If hon. Members want to dispute the words of their honourable colleague on the Front Bench I am happy to give way to them.

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Christopher Leslie (Nottingham East, Labour)

In a moment. In a letter of 18 July 2010 to the Chairman of the European Scrutiny Committee, to whom I shall give way in a moment, the Economic Secretary also said, very helpfully, that

“this Government judges”

the EFSM

“to be an appropriate response to the crisis.”

So the official voice of the Government, according to what the Economic Secretary has written in her own fair hand, was that there was a consensus approach during the transitional period following the general election and that the current Government judged the EFSM to be an appropriate response to the crisis.

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William Cash (Stone, Conservative)

Does the shadow Minister accept that the date on which that particular statement was made, 15 July 2010, was four days after the expiry of the date on which a challenge to the European Court could have been made? Furthermore, does he accept that since then the Government have insisted that they oppose the proposal of the former Chancellor of the Exchequer?

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Christopher Leslie (Nottingham East, Labour)

That is an extremely illuminating fact and it would be perfectly legitimate for Members on the Government side, perhaps in private meetings elsewhere, to ask a few more searching questions about what exactly their Front Benchers have been doing in their name. Either the Minister who signed the memorandum was wrong—perhaps she was misled in her understanding or she and her officials were ignorant of the facts—or perhaps she was actually speaking the truth but was subsequently slapped down by the Chancellor.

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Christopher Leslie (Nottingham East, Labour)

I will not because I have only a few minutes left.

The situation has changed markedly since last May. The circumstances under which the EFSM was then agreed have altered, casting doubt on whether it is being used appropriately, as many hon. Members have said. Because of the various weaknesses shown by the current Administration in Europe, we have ended up increasingly paying more than our fair share in relation to the EFSM facility, especially as time and again the junior EFSM fund in the bail-out package has ended up

shouldering up to a third of the bail-out costs, as some hon. Members have pointed out. We have found that the agreement in May regarding the EFSM sum of €60 billion would represent only 12% of the non-IMF contribution, with the remaining €440 billion being borne by the wider eurozone fund. The British liability for that was going to be only 12.5%, but the proportion contributed from the EU-wide EFSM to the Irish bail-out was greater than the eurozone proportion. The Portuguese bail-out was hardly an improvement, with one third coming from the EFSF, one third from the EFSM and another third from the IMF.

The Minister must explain to the House why the EFSM, which makes up only 12% of the non-IMF contribution, is being drawn upon to the same extent as or more than the EFSF. That forms a crucial part of the motion tabled by Back Benchers. The Minister is under an obligation at least to say why we are using the EFSM to such a high degree. That is incredibly important. It has been in the gift of Ministers to answer that question, but so far they have neglected to do so.

The EFSM was supposed to be a temporary mechanism all along. The failure of the Government to push forward with a permanent mechanism, despite opportunities to do so, is an abandonment of UK interests. The temporary emergency EFSM was only ever meant to be a short-lived interim arrangement. We should have been moving on as quickly as possible to a permanent eurozone-only mechanism. Why has the Chancellor failed to press his European colleagues to sort out a permanent eurozone-only fund more urgently?

The Chancellor attended an ECOFIN meeting on 18 May. The Financial Secretary attended ECOFIN on 8 June last year, the Chancellor on 13 July, the Chancellor again on 7 September and the Financial Secretary again on 30 September, yet the press releases from each of those ECOFIN meetings suggest that not once did Ministers raise the issue of pressing forward with that permanent arrangement. Can the Minister explain why not?

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Ian Davidson (Glasgow South West, Labour)

The shadow Minister is rightly attacking the Government for being weak and vacillating. Will he tell us what bold, straightforward and clear position he is urging us to take on the vote?

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Christopher Leslie (Nottingham East, Labour)

I am happy to do that. Unfortunately, the wording of the motion refers to the legality of the EFSM, and I do not think the former Chancellor, my right hon. Friend Mr Darling, would have acted illegally to sign up to it. I accept that that is a small point, but it is for that reason that we will abstain today.

We will have to revisit the issue time and again. It is hugely important that hon. Members understand the situation. We have not yet seen any occasion on which Ministers have raised the subject of moving to the permanent arrangement as swiftly as they can. They claim that they are responsible for having secured a commitment to move to a permanent arrangement in 2013. The temporary arrangements were always going to expire in 2013 anyway. So much for the famous victories claimed by the Prime Minister, the Minister and other hon. Members.

Too often we have an empty chair at the European table. Only a few weeks ago, on 6 May, Britain was excluded again from a meeting that took place in

Luxembourg—the empty-chair approach was very evident when ECB officials met the Finance Ministers of Germany, France, Italy, Spain and Greece. Will the Minister say whether there was an active decision by the Treasury to continue to take an empty-seat policy, or were we simply not invited? We see in the

Financial Times

that Swedish officials are concerned that the Prime Minister is not pressing harder to prevent key decisions from being made only among eurozone members. Will the Minister say what we are doing to stop being sidelined at that European level?

We know very well that that temporary fund was needed. We recognise that it was part of a concerted pan-European action, standing together against the global forces that threatened the bond market with contagion. That is especially the case now in the eurozone. We have to acknowledge that we have trading partners in Europe and it is in our interest to support their continued economic stability, but Britain has already paid its fair share in the stabilisation process in the case of Ireland and Portugal. The time has come for a stronger voice with real influence in Europe to ensure that British interests are properly served, which must mean a swifter move to a permanent eurozone-only bail-out mechanism.

The fund was always due to expire in 2013. That was not Ministers’ doing; it was the original design. We know that Ministers were involved in the cross-party consensus during the transition from the previous Government to the present one. Ministers cannot wriggle out of their responsibility now in relation to the EFSM. The Government are on extremely shaky ground and even their natural allies are questioning the coalition’s leadership. The issue will no doubt return on another day.

3:40 pm
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Mark Hoban (The Financial Secretary to the Treasury; Fareham, Conservative)

I congratulate my hon. Friend Mark Reckless on securing the debate. I will start by setting out our view, which is that responsibility for sorting out the problems of the euro area ultimately rests with euro area Governments. We are not members of the euro area, so it is not our responsibility to deal with all its problems. However, no one should be under any misapprehension about the importance of the euro area to the UK economy.

A strong euro area means a growing market for our goods and services. A weak euro area puts at risk jobs and businesses in our constituencies, as my hon. Friends the Members for Orpington (Joseph Johnson) and for Bristol West (Stephen Williams) noted in their contributions. More than 40% of UK exports are to the euro area, and we know, as has been repeated ad nauseam, that we export more goods and services to Ireland than we send to Brazil, Russia, India and China combined. We have a clear interest in ensuring that the problems in the euro area are resolved and that the right mechanisms are in place to do so, but it is not our responsibility to sort them out and it is right, as the amendment makes clear, for us to find a permanent solution that does not require us to contribute to this.

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Mark Hoban (The Financial Secretary to the Treasury; Fareham, Conservative)

If my right hon. Friend will be patient with me, I want to respond to some of the important points raised by a number of Members who have contributed to the debate. If I have time at the end, I will take interventions.

My hon. Friend the Member for Rochester and Strood said that taxpayers had contributed £12.5 billion to bail out euro area states, but that is simply not the case. Let me explain why. The European financial stability mechanism is funded by the European Commission borrowing from capital markets, and it is only in the event that a beneficiary member state defaults that the EU budget, and so the UK, will be called upon to contribute. The UK does not fund the EFSM, which is a contingent liability. Not a single pound of taxpayers’ money has gone into the EFSM. On Ireland, as my hon. Friend Claire Perry has said, we have made a loan, not a gift or a grant, and we expect to get our money back. Not a penny of the money that we have saved through spending cuts has been used to make that loan.

Let me go back to the events of a year ago. Europe faced a crisis, with concerns about the stability of Greece, and in the May ECOFIN meeting the EFSM and the EFSF were created. They were created at the height of the Greek crisis, in exceptionally turbulent conditions, before the Government took office. Markets were increasingly questioning the EU’s response to the situation. Indeed, there were fears about the stability of the entire euro area and the risk of contagion was real and dangerous. European Finance Ministers decided to create a broader package to restore confidence and stability. ECOFIN agreed to establish the EFSM and at the same time euro area Finance Ministers agreed to create the much bigger EFSF, which is backed entirely by euro area countries and does not create any liability for the UK.

It is worth reminding hon. Members that, although the Greek crisis triggered the creation of the new mechanism, the EFSM was not used by Greece. The Greek rescue package was financed by the IMF and a series of bilateral loans between individual euro area member states and the Greek Government.

The EFSM was agreed at ECOFIN by qualified majority voting and before this Government took office, and Cabinet Office protocol was followed throughout. At the time, in a conversation with his predecessor, the current Chancellor made his views on the EFSM clear and cautioned against committing the UK to proposals that would have a lasting effect on the UK’s public finances. Members need not take my words for it; Mr Darling gave his recollection of the conversation to the House on 15 December 2010:

“I discussed with the Chancellor what we should do about the financial stability mechanism. He had his reservations and stated very clearly that he was against deploying it”.—[Hansard, 15 December 2010; Vol. 520, c. 954.]

That exactly matches the account given by my right hon. Friend the Chancellor.

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Mark Hoban (The Financial Secretary to the Treasury; Fareham, Conservative)

No. As I said earlier, I want to make some progress on the matter.

My right hon. Friend was also clear that, in the days prior to the formation of the coalition, the right hon. Member for Edinburgh South West was still the Chancellor

of the Exchequer, representing the UK in a dynamic negotiating environment, and it was for him to reach that decision.

Chris Leslie quoted an extract from an explanatory memorandum, and yes there was consensus between the parties about the process, but not about the outcome—as the former Chancellor of the Exchequer made clear in his statement to the House in December. It was a matter for the previous Chancellor to decide, and he was the man occupying the office at the time.

Some of my hon. Friends have today articulated concerns about the use of article 122. The EFSM was created following agreement by a qualified majority of member states at the ECOFIN meeting on 9 May 2010, and the terms of the mechanism are set out in an EU Council regulation. It is based on article 122 and states:

“Where a Member State is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional circumstances beyond its control, the Council, acting by a qualified majority on a proposal from the Commission, may grant, under certain conditions, Community financial assistance to the Member State concerned.”

The Council decided that in those circumstances those criteria applied.

Several hon. Members have raised the issue of article 125 of the treaty, the so-called “no bail-out” clause, but article 125 does not preclude member states from providing loans to one another, and, as evidence of that, the EU’s balance of payments facility has already provided medium-term financial assistance to a number of member states.

Over the past year, we have had to deal with the legacy that we inherited from the previous Government and the previous Chancellor of the Exchequer, but we have made sure that the permanent arrangements to sort out the euro area are the ultimate responsibility of euro area member states.

My right hon. Friend the Prime Minister made that his goal at last December’s European Council, where he secured two significant victories for the UK. First, he made sure that article 122 could not be used for euro area bail-outs in the future. Secondly, he ensured that the UK would not have to contribute to the European stabilisation mechanism, the permanent mechanism that will replace the EFSM and the EFSF. As the Prime Minister said, we have a good “belt and braces” approach—a no need, no use approach.

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Mark Hoban (The Financial Secretary to the Treasury; Fareham, Conservative)

If my hon. Friend allows me to continue for a few minutes longer, I may be able to take some interventions.

We ensured that the recitals—the preamble—to the decision by Heads of State and of Government at the March European Council stated that article 122

“will no longer be needed”

and “should not be used” to ensure financial stability for the whole euro area once the permanent mechanism is in place.

In shaping the debate about the ESM, we had clear priorities. First, we had to ensure that there was no transfer of powers from the UK to the EU. We would never have accepted such a transfer, so the treaty change applies only to euro area member states, and only euro

area member countries have to contribute to the rescue of other euro area countries. There is no transfer of power, competence or, indeed, funds from the UK to Brussels under that treaty change, but that judgment will not be for Ministers alone.

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Mark Hoban (The Financial Secretary to the Treasury; Fareham, Conservative)

I have two minutes left to conclude my remarks and to respond to the very detailed questions that hon. Members on both sides have raised, so I should like to continue to do that.

The treaty change was agreed at the Council in March and will have to be ratified according to the process set out in the European Union Bill. Ministers will need to make a statement explaining why the treaty change does not transfer power or competence from the UK to Brussels, and Parliament will need to pass primary legislation before the UK can ratify that change.

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Mark Hoban (The Financial Secretary to the Treasury; Fareham, Conservative)

I will give way to my hon. Friend—briefly.

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William Cash (Stone, Conservative)

On the Minister’s own terms, it is absolutely clear that the Chancellor of the Exchequer was against those arrangements, so why in that two-month period did the Government not challenge them in the European Court of Justice?

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Mark Hoban (The Financial Secretary to the Treasury; Fareham, Conservative)

My hon. Friend and his Committee have a particular view on the legality of the arrangements, but as I have said there was a clear view that article 122 could be used in those circumstances.

Although we have had to live with the decisions of the past and the EFSM, we have fought to free our nation from the constraints of those decisions in the future. We will not have to contribute towards a European rescue of another euro area member state once the permanent ESM comes into force.

I believe that the amendment tabled by my hon. Friend Chris Heaton-Harris captures the essence of our position. As a consequence of the action taken by the previous Government, we are part of the EFSM. This Government have had to ensure that we are outside the scope of the permanent mechanism. My right hon. Friend the Prime Minister has already delivered that commitment at the European Council in December. I hope that my hon. Friends recognise that the action we have taken has freed the UK from the obligation to take part in future bail-outs of euro area member states.

3:50 pm
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Mark Reckless (Rochester and Strood, Conservative)

So the Treasury agrees that this is unlawful, but it is not going to do anything about it.

In the debate, it was suggested that these bail-outs were a rounding error. My constituents do not believe that £500 per household is a rounding error. It was also suggested that perhaps these moneys are going to be paid back and there will not be defaults. Well, if Members believe that, why do they not invest their own money rather than that of their constituents? My hon. Friend Andrea Leadsom said that it would be possible to get a return of 50% or 100%. Does not that suggest that we will not be getting our money back?

Today Members face a choice. If they believe that it is sufficient to urge the Government to raise the issue, then vote yes to the amendment regrettably tabled by my hon. Friend Chris Heaton-Harris. If they believe that we need to put a stop to these bail-outs and say, “Enough is enough, it is our money, we did not join your currency, and we want our money back”, then vote no to the amendment. I am disappointed to hear that Opposition Members will not be joining us in the Lobby on this occasion. Chris Leslie put his position honourably; perhaps one day he will have a leader who will lead. For now, however, the position is that these bail-outs continue and our constituents’ money is being thrown away—good money after bad.

This is an opportunity for Members of this House to stand up, to look our constituents in the eye, and to say that we voted no to the bail-outs. Please vote no to the amendment.

Question put, That the amendment be made.

The House divided:

Ayes 267, Noes 46.

Division number 286

See full list of votes (From The Public Whip)

Question accordingly agreed to.

Main Question, as amended, put and agreed to.

Resolved,

That this House notes with concern that UK taxpayers are potentially being made liable for bail-outs of Eurozone countries when the UK opted to remain outside the Euro and, despite agreement in May 2010 that the EU-wide European Financial Stability Mechanism (EFSM) of €60 billion would represent only 12 per cent. of the non-IMF contribution with the remaining €440 billion being borne by the Eurozone through the European Financial Stability Facility (EFSF), that the EFSM for which the UK may be held liable is in fact being drawn upon to the same or a greater extent than the EFSF; further notes that the European Scrutiny Committee has stated its view that the EFSM is legally unsound; urges the Government to raise the issue of the EFSM at the next meeting of the Council of Ministers or the European Council; and supports any measures which would lead to an agreement for a Eurozone-only arrangement.

3:52 pm
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Bernard Jenkin (Harwich and North Essex, Conservative)

On a point of order, Mr Deputy Speaker. May I put it to you that the Backbench Business Committee is in fact not being allowed to operate as was clearly originally intended when it was established? Because the motion was amended, the Committee was unable to allow the House to vote on the motion that it had selected for debate. What advice can you give to the House on how that matter might be rectified so that in future, as on Opposition days, the motion is voted on before the amendment is taken? What advice can you give to enable that to happen in future?

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Lindsay Hoyle (Chairman of Ways and Means; Chorley, Labour)

I recognise that there is a lot of frustration at the way the motion was dealt with today. However, things have been carried out in order. I am sure that the Leader of the House will reflect on the hon. Gentleman’s comments and think about them, but I am also sure that he will speak to the Committee to see whether there is a way forward for everybody. Hopefully, some amiable agreement can be reached in future, if that is the desire of the Committee.

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Ian Davidson (Glasgow South West, Labour)

Further to that point of order, Mr Deputy Speaker. Does that not demonstrate quite clearly that this set of Government Whips is just as bad as the previous one?

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Lindsay Hoyle (Chairman of Ways and Means; Chorley, Labour)

I thank the hon. Gentleman for that non-point of order.