European Union (Amendment) Act 2008

Royal Assent – in the House of Commons at 6:55 pm on 16th March 2011.

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Photo of David Lidington David Lidington The Minister for Europe 7:11 pm, 16th March 2011

I beg to move,

That this House
takes note of draft European Council decision EUCO 33/10 (to amend Article 136 of the Treaty on the Functioning of the European Union with regard to a stability mechanism for Member States whose currency is the euro) and, in accordance with section 6 of the European Union (Amendment) Act 2008, approves Her Majesty’s Government’s intention to support the adoption of draft European Council decision EUCO 33/10.

Under the terms of the European Union (Amendment) Act 2008, the House should approve this motion on the proposed change to the European treaties so that the Prime Minister can then support the adoption of the draft European Council decision to amend article 136 of the treaty on the functioning of the European Union at the European Council scheduled for 24 and 25 March. It is my belief that agreement to this, which is about the narrow change brought forward to enable the countries that use the euro as their currency to establish a permanent stability mechanism from 2013 onwards, is profoundly in the interests of the United Kingdom.

Photo of Philip Hollobone Philip Hollobone Conservative, Kettering

Will my right hon. Friend confirm that this is the first time that the passerelle mechanism—in other words, a fast-track treaty amendment without an intergovernmental conference—is being used? Is this the first time that such a passerelle clause has been brought before the House?

Photo of David Lidington David Lidington The Minister for Europe

We can debate whether or not it is a passerelle. It is certainly the first time that the provisions under the Lisbon treaty for a simplified revision procedure, rather than the full-scale procedure to which my hon. Friend alluded, has been employed.

Photo of Bernard Jenkin Bernard Jenkin Chair, Public Administration Committee, Chair, Public Administration Committee

Can we be absolutely clear what we are doing here? It used to take months, even years, to change a European treaty. Tonight, we are going to debate this motion for 90 minutes and then the Government will go to the European Council and agree to that change in the treaty. That is correct, is it not, because the next time this comes back for scrutiny it will be a fait accompli?

Photo of David Lidington David Lidington The Minister for Europe

No, I do not share my hon. Friend’s analysis of the procedures that lie ahead of us, and I think he underestimates the further opportunities there will be for the House to consider this proposed treaty amendment. I will come on to that in a little more detail later.

First, however, I want to make it clear why the Government believe that agreement to this treaty change is in the interests of this country. As my right hon. Friend the Prime Minister made clear to the House in his statement following the European Council held in December last year, no one should doubt that stability in the eurozone is in the interests of the United Kingdom. Nearly half our trade is with the eurozone, and London is Europe’s international financial centre. It is precisely because of this interrelationship that the UK’s financial institutions and companies, both big and small, have huge exposure to the banks and businesses based throughout the eurozone. Worsening stability, let alone a further and prolonged economic and financial crisis, would pose a real threat to the UK economy and to jobs and prosperity in this country.

Photo of Kelvin Hopkins Kelvin Hopkins Labour, Luton North

Would it not be more appropriate for an intergovernmental agreement to be reached among the member states of the eurozone, rather than have some change to the treaty on the functioning of the European Union?

Photo of David Lidington David Lidington The Minister for Europe

It would have been possible for the member states of the eurozone to have come to such an intergovernmental agreement, but they chose not to do so. In addition, a number of the other member states which have not joined the euro but aspire to do so and which have an obligation in their accession treaties to do so in due course would prefer any necessary treaty change to be agreed by 27 states, rather than dealt with on an intergovernmental basis alone.

Photo of John Baron John Baron Conservative, Basildon and Billericay

Given that this vote will have to be unanimous and we therefore have veto, is this not an ideal opportunity at least to try to extract concessions from the EU? We could take such an approach on, for example, the working time agreement, in line with the coalition agreement.

Photo of David Lidington David Lidington The Minister for Europe

As I hope to demonstrate to my hon. Friend’s satisfaction later in my speech, my right hon. Friend the Prime Minister secured an extremely good bargain for this country when he took part in the negotiations that produced this amendment. First, however, I wish to deal with the points raised by my hon. Friends the Members for Kettering (Mr Hollobone) and for Harwich and North Essex (Mr Jenkin).

This kind of motion has not been debated in this place before and should the European Union Bill, which this House agreed without Division on Third Reading last week, become law, we will not have this particular procedure here in the future. I want to give a firm assurance to the House that, in particular because of the provisions in that Bill, this evening is only the first opportunity for the House to have its say on the proposed treaty change; a second opportunity will be provided through the process of ratification.

I have to say to the House that the previous Government left this country with a system of both popular and parliamentary control over treaty change that was grossly inadequate. Under the inherited arrangements, this motion would have been all that was required by way of parliamentary approval, at least in terms of an affirmative resolution. If the European Union Bill were not to become law, a motion of this type leading to the adoption of a proposal for treaty change would, on ratification, still have to come back to Parliament and be laid before both Houses, but it would then be for Parliament to pray against the provision which had been laid before the House. Obviously the usual problems are involved in terms of what amounts to a negative resolution procedure in giving effect to an understandable desire for full and effective parliamentary scrutiny. However, as I have said, the Government, through the new legislation that we are taking through Parliament at the moment, want to provide a much stronger assurance for the future that this particular proposal and any others that might conceivably come forward will be given much greater and more rigorous parliamentary scrutiny.

Photo of David Nuttall David Nuttall Conservative, Bury North

Let us be clear about what will change if that Bill becomes an Act, as I am sure it will in due course. Is it the case that the sort of debate we are able to have tonight will not be possible in future because we will have post-decision debates, in that decisions will have already been taken before that Act, as it will be then, kicks in?

Photo of David Lidington David Lidington The Minister for Europe

I hope that I can give my hon. Friend the reassurance he seeks. First, I will make a bit of progress and describe how the provisions in the European Union Bill will bite on this measure and any future measures that are modelled on it.

Photo of Wayne David Wayne David Shadow Minister (Foreign and Commonwealth Affairs)

A very important question has just been asked by a Back Bencher and the Minister has made no attempt to respond to it. Would it not be technically possible to have the new procedures introduced by the European Union Bill as well as the current procedures? One is post and the other is pre.

Photo of David Lidington David Lidington The Minister for Europe

I had better invite the hon. Gentleman to read the Hansard record of thedebates on the European Union Bill in which he took part—both in Committee and on Report. If he does read them, he will see that the Government introduced an amendment precisely to make explicit the requirement for this proposed treaty change to be subject to more rigorous parliamentary scrutiny than would have been permitted if the current statutory procedures under the Constitutional Reform and Governance Act 2010 had been allowed to stand and to suffice. I hope that he was not asleep when we debated that amendment. If he examines Hansard, he will find that we have covered that point in some detail.

The previous Government left the country with a system of control that was grossly inadequate. Section 6 of the European Union (Amendment) Act 2008 requires that when a draft decision under the simplified revision procedure—under article 48(6) of the treaty on European Union—is proposed, a Minister must introduce a motion and have it passed by both Houses without amendment before the Prime Minister can signal his agreement to its adoption at a subsequent European Council. That is the point in the decision-making process that we have reached tonight.

There is an option, under the 2008 Act, for the Government of the day to insert a disapplication provision into this type of motion. Such a provision would enable the Government to agree to subsequent amendments to the draft decision to amend the treaty without having to come back to the House for approval. The options were put before me by my officials and I was absolutely clear from the moment I read the papers that to introduce a disapplication provision of that kind would be completely unacceptable and would give Parliament absurdly little control over such an important matter. For that reason, there is no such provision in the motion.

Let me make it clear: if the House approves the motion, it is authorising the Prime Minister to agree to this draft decision—this text alone—at the European

Council. Should there be any suggestion of amending the draft decision at the European Council—there is no such suggestion from any quarter at present—the Prime Minister could not legally agree to it at the European Council without first coming back to this House and the other place for additional approval after a further debate. The draft decision that is referred to in the motion will be the version that is agreed at the Council and there can be no other version of the treaty change without the further approval of the House in a debate such as this.

The European Scrutiny Committee has rightly assessed the draft decision as politically important and has recommended it for debate on the Floor of the House. We are scrutinising the draft decision, as the Committee has requested, and debating whether the Prime Minister may signal his support for its adoption at the Council on 24 and 25 March.

Photo of Bill Cash Bill Cash Chair, European Scrutiny Committee, Chair, European Scrutiny Committee

My right hon. Friend is going through all the procedures and the technical side of things, but, as he knows, that is not really what the treaty is about. I hope he will agree that it represents a huge change in the relationship between the United Kingdom and the European Union. Anyone who cares to look back at what those of us who have argued this case before have said, and to look in particular at The Economist this week, will know that the treaty is a hybrid one that is being devised, driven and pressed forward by Germany and those countries that wish to acquiesce in Germany’s dictated terms. Does he agree?

Photo of David Lidington David Lidington The Minister for Europe

No, I am afraid I do not agree with my hon. Friend on that point. As I have said, it is in the interests of the United Kingdom for there to be stability in the eurozone. To some extent, the measures that the eurozone countries are now taking are a response to the kind of critique that he and other Members of this House made 10 or 11 years ago when the euro was first created. They—I was very much in this camp—argued that it would cause huge difficulties to create a currency union involving a single interest rate and single monetary policy that did not have some way of reconciling very different rates of growth, inflation and unemployment in the countries in that single currency area.

I want to finish on the procedural points and then move on to the content. If the draft decision is adopted by the European Council, all 27 member states will have to approve the treaty change and ratify it in accordance with their respective constitutional requirements before the decision enters into force. The treaty amendment cannot come into effect until we—and everybody else—ratify the adopted decision.

My right hon. Friend the Foreign Secretary and I have already given an assurance at this Dispatch Box that this and every other future treaty change will be considered in accordance with the terms of the European Union Bill, once that enters into force. That Bill will require Ministers to lay a statement before Parliament within two months of the commencement of part 1 of the Bill, explaining whether the treaty change would fall within clause 4 of the Bill—namely, whether it would involve a transfer of competence or power from the United Kingdom to the European Union.

The treaty change will then have to be ratified by primary legislation—a full Act of Parliament—before the United Kingdom is able to say formally that it has completed the ratification process, so even when we get to that stage, the final version, agreed by all 27 Heads of Government, has to come back to Parliament for ratification and will be debated in all the stages of primary legislation. Tonight is therefore not the only opportunity that my hon. Friends will have to debate the measure.

Photo of Mark Reckless Mark Reckless Conservative, Rochester and Strood

Surely the key point about this debate is that we have a veto, and that gives us a lever? Most people in this country feel that EU integration has already gone far too far. Is it not the case that the Minister’s refusal to use that lever can only mean that our relationship with the EU will, sooner or later, have to be resolved through an in/out referendum?

Photo of David Lidington David Lidington The Minister for Europe

I will reply to my hon. Friend Mark Reckless, but first I give way to my hon. Friend Mr Bone.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

I am grateful to the Minister for giving way; he is being exceptionally generous, as always. Will some European countries use a referendum to ratify a change to a treaty?

Photo of David Lidington David Lidington The Minister for Europe

It is obviously for those countries and their legal and constitutional systems to say how they will go about ratification, but when the proposal was discussed at General Affairs and External Relations Council meetings, at which I represented the United Kingdom, there was great concern among the member states that have provision for referendums in their constitutional arrangements to ensure that the agreed wording was such that it made it possible for them to ratify without triggering a referendum. I can remember Ministers from a couple of countries making those points very firmly. The president of the European Council, the Commission and the German Government who, it is no secret, had been promoting the need for a treaty change, accepted that. The language that we have is narrow in its scope and provides only for provisions affecting the countries that have the euro as their currency. It is for Ireland, the Netherlands and other countries to decide whether they need a referendum. My understanding is that those Governments think that that is not required.

Photo of David Lidington David Lidington The Minister for Europe

It will come as no surprise to my hon. Friend the Member for Rochester and Strood to know that I disagree with him about the need for an in/out referendum. We debated that at some length the other day in proceedings on the European Union Bill. The Government believe that it is in the interests of the United Kingdom to remain an active and positive player in the European Union. That does not mean that we like everything it does or everything about the way the current arrangements have been established, but we believe that it is in the interests of our country to engage, campaign and fight for our interests within the European Union and not to turn our backs on it.

Several hon. Members:

rose —

Photo of David Lidington David Lidington The Minister for Europe

I shall give way to my hon. Friend Robert Halfon, then I shall make progress.

Photo of Robert Halfon Robert Halfon Conservative, Harlow

As the veto has been mentioned, perhaps it could be waved in front of the EU countries that are so against implementing a no-fly zone over Libya.

Photo of David Lidington David Lidington The Minister for Europe

My hon. Friend makes an important argument, which is probably somewhat outside the scope of the treaty change that we are debating today, but it will have been noted by those he wished to hear his comments.

Photo of Anne Main Anne Main Conservative, St Albans

We have touched on whether or not the Minister thinks our membership of the EU is a good thing, but we should ask the people whether they believe we should be in Europe. That is a question which, I am sorry to say, he has not answered.

Photo of David Lidington David Lidington The Minister for Europe

The Prime Minister made it clear in answer to questions last week that he believes it is in the United Kingdom’s interest to remain part of Europe. One of the things that my hon. Friend Mrs Main needs to say, in the hypothetical choice she advocates, is what the United Kingdom should leave the European Union in order to join. I will not stray beyond the confines of the motion this evening; I merely pose that question to my hon. Friend.

I shall give way to my hon. Friend Mr Leigh; then I will make progress and not give way for a while.

Photo of Edward Leigh Edward Leigh Chair, Public Accounts Commission, Chair, Public Accounts Commission

The Minister argues that we should be part of the process, but is there not a logical absurdity in what he is saying? When the real decisions were taken, our Prime Minister was kicked out. We are like a cork bobbing in their wake. We have no real power over the eurozone. That is why many people now think the time has come for a referendum on whether to stay in or get out.

Photo of David Lidington David Lidington The Minister for Europe

My hon. Friend, uncharacteristically, underestimates the influence of our right hon. Friend the Prime Minister. When we look at how he has managed to assemble and lead a coalition of countries committed to greater budgetary discipline—something that would not have happened without his initiative—and when we look at the work that he is leading at a European level on the need for growth, competitiveness and deregulation, we can see that the influence of the Prime Minister and of the United Kingdom is being felt. I would encourage—

Photo of David Lidington David Lidington The Minister for Europe

I am not giving way further.

I would encourage my hon. Friend the Member for Gainsborough to visit more EU member countries and talk to representatives of their Governments, and I think he will find that our right hon. Friend has in 10 brief months attained considerable respect and a high standing among the partner countries with which he deals and negotiates.

Let me turn to the proposed treaty change and how it came about. It originates from the need for a permanent mechanism to be established by the member states of the euro area to safeguard the financial stability of the euro area as a whole. As the House knows, in May last year the EU established two emergency instruments to respond to financial crises—the European financial stability facility and the European financial stability mechanism. Many hon. Members have expressed their unhappiness at the EFSM arrangements, to which, because of a decision taken in the dying days of the previous Government, this country is a party. That unhappiness is wholly shared by this Government. It is yet another mess that we have inherited and must seek to clean up.

Against that backdrop and the continued uncertainty in the financial markets, the members of the European Council agreed last December to amend article 136 of the treaty on the functioning of the European Union to provide that member states of the eurozone may establish a permanent stability mechanism. That will provide a necessary means for dealing with cases that pose a risk to the financial stability of the euro area as a whole, something that is important to us given the extent of our trade and other economic connections with the eurozone even though we are outside it and intend to remain so.

The proposed amendment contained in the draft decision adds the following paragraph to article 136:

“The Member States whose currency is the euro may establish a stability mechanism to be activated if indispensable to safeguard the stability of the euro area as a whole. The granting of any required financial assistance under the mechanism will be made subject to strict conditionality.”

By providing for eurozone members to establish a permanent mechanism, the European Council is making absolutely clear the responsibilities of all members of the euro area to each other and to the overall stability of the euro area. The proposed new paragraph will be added to treaty provisions that apply—I stress this point—only to member states whose currency is the euro. It does not apply to non-euro area member states and cannot confer any obligations upon them. We believe that financial problems within the euro area should be resolved primarily by euro area members.

The details of how the ESM will operate are being discussed in Brussels. In accordance with the conclusions of the December European Council, member states whose currency is not the euro can be involved on a voluntary basis in finalising work on what will be an intergovernmental arrangement to set up the ESM under the authority given by this proposed amendment to the treaties. My hon. Friend the Financial Secretary to the Treasury is responsible for overseeing UK input to those discussions.

I want to stress that while we are involved on a voluntary basis in the design of the mechanism—it is in our interests to be so—we cannot and will not be part of the mechanism. In fact, we could not be part of the ESM unless the UK first joined the euro area, and as the whole House is already aware, the Government have declared their intention not to join or to prepare to join the euro. Furthermore, under the terms of the European Union Bill, if any future Government were so foolish as to wish to do so, they could join only with parliamentary approval by Act of Parliament and the consent of the British people in a referendum.

Photo of John Baron John Baron Conservative, Basildon and Billericay

Will my right hon. Friend return to the power of the veto that we have? I accept that the matter will come back to this place and that we will discuss it again, but surely we should now be trying to extract concessions in return for not using our veto. I ask him again, because he uncharacteristically did not address the point last time, whether we could be using our veto to extract concessions on the working time agreement—an aim that was, after all, in the coalition agreement.

Photo of David Lidington David Lidington The Minister for Europe

On the working time directive, I completely share my hon. Friend’s objectives. Work is going on involving, in particular, my right hon. Friends the Secretaries of State for Business, Innovation and Skills and for Health. We judge that the appropriate time to seek to give effect to the objectives set out in the coalition programme for government will be when the Commission comes forward with its own proposals to change the terms of the working time directive, which we expect will be some time in the next 12 months. That is the moment that will give us the opportunity to do this. However those changes to the working time directive might be given effect, there will have to be a legislative procedure involving not only the Council of Ministers but the European Parliament. It is at that time that we will need to deal with the matter.

Photo of Martin Horwood Martin Horwood Liberal Democrat, Cheltenham

Does the Minister agree that the stability mechanism is a test of our willingness to engage positively with Europe and to act responsibly, using the existing procedures of the House and those laid down in the European Union Bill? After all, we have no interest in further weakness or instability in the eurozone; it is positively in Britain’s interest to engage responsibly with the process, rather than to talk of vetoes or of extracting concessions on issues quite unrelated to the stability mechanism.

Photo of David Lidington David Lidington The Minister for Europe

My hon. Friend makes good points. It is in our interests that the euro succeeds. Many in the House still doubt whether that is possible, but I can say only that, in discussions with my counterparts throughout the European Union, I recognise that those countries that have chosen the euro as their currency retain an incredibly powerful political commitment to the project, and I simply do not think it realistic to talk about shaking them from that and trying somehow to bring about some eurozone Gotterdammerung in the near future. The converse would be true: that sort of outcome—the disintegration of the eurozone—would cause enormous damage to jobs and to prosperity in the United Kingdom, precisely because of the interrelationship between the economy of this country and the economies of our chief trading partners.

Photo of David Lidington David Lidington The Minister for Europe

No, I am not giving way again at the moment.

A number of my hon. Friends were also keen to be reassured that the proposed treaty change does not and will not transfer any competence or power from the United Kingdom to the European Union, and I want to reassure them now. As I have mentioned, the treaty change involves an amendment to one of the provisions that applies only to member states whose currency is the euro, not to others. Therefore, we cannot be part of the ESM without joining the euro itself.

The change is also being undertaken using article 48(6) of the treaty of the European Union, which explicitly states in its provisions that it

“shall not increase the competences conferred on the Union in the Treaties”.

All member states are agreed on that point and stated so, in terms, in paragraph 6 of the recitals to the draft decision. The opinion of the European Commission, dated 22 February, reaffirms that the proposed treaty change does not affect the competences conferred upon the Union.

Some hon. Members have questioned whether the Government should be required to hold a referendum even when the United Kingdom is not directly affected, and this starts to address the point that my hon. Friend Mr Cash made in an intervention. As I highlighted earlier, the European Union Bill, after our seven days of debate on it, will ensure that any treaty changes constituting a transfer of competence or power from this country to Brussels will be subject to a referendum. But this treaty change will enable no such thing, and it does not make sense to try to insist on a referendum on agreements that concern only other member states. It makes sense no more than it would have made sense for Germany to hold a referendum on the recent defence treaty between the United Kingdom and France.

The treaty change under discussion is in our national interests, but on top of that, to come to the point that my hon. Friend Mr Baron made, the Prime Minster during the course of the negotiations achieved two further important objectives. First, as the conclusions of the December European Council and, more importantly, the preamble—the recitals, as they are known—to the draft decision itself confirm, once the ESM is established to safeguard the stability of the euro area, article 122(2), on which basis the European financial stability mechanism was established, will no longer be used for such purposes. Therefore, our liability—bequeathed by the previous Government—for helping to bail out the euro area through EU borrowing backed by the EU budget, under the EFSM, will cease. That was an important achievement for British interests.

Photo of Bill Cash Bill Cash Chair, European Scrutiny Committee, Chair, European Scrutiny Committee

As my right hon. Friend will know, according to Reuters and many other news agencies Portugal is on the brink of needing a bail-out because its economy is imploding. Does he accept that, as this debate continues, we will be exposed under the EFSM to the tune of up to whatever is the proportion that we should contribute under the proposals until 2013, and that we should have insisted that that was repealed and revoked when the other arrangement was entered into? That is the concession that we should have got, and the Government did not even seek to achieve it.

Photo of David Lidington David Lidington The Minister for Europe

We inherited from our predecessors a legislative measure that was brought in under an existing competence and treaty base and that was, from that time, legally binding. My hon. Friend will understand that I am not going to be drawn into speculating about the position of other individual member states. My understanding, on the basis of the most recent information that I have, is that no other member state has been asking the EU authorities for additional financial help.

As the Prime Minister has made clear many times in this House, securing a tight and disciplined budget for the future is the highest priority for the European Union. At the last European Council meeting, Britain led an alliance of member states to unprecedented success in limiting the 2011 EU budget increase to 2.91%—a very marked improvement on our predecessors’ performance in the previous year. Crucially, in moving forwards, working alongside key partners such as France, Germany, Netherlands and Finland, we are committed to a real-terms freeze in the EU budget in the new perspective, which we expect to run from 2014 to 2020, and we have written collectively to the President of the European Commission setting out our position.

Photo of Wayne David Wayne David Shadow Minister (Foreign and Commonwealth Affairs)

The Minister claims that a great victory was achieved by our Prime Minister with regard to the 2.91% increase. Will he confirm to the House, however, that just a few months earlier he was opposing that?

Photo of David Lidington David Lidington The Minister for Europe

That is no secret. It is a matter of public record that we would have preferred a complete freeze on the 2011 budget, and we voted for that in the Council of Ministers. I regret that we were one country short of achieving the blocking minority. [ Interruption. ] That kind of protest from the shadow Minister is rank double standards. The Labour Government not only conceded increases in the annual budget that went way ahead of anything like 2.91% but, even more significantly, negotiated an agreement on the current multi-annual financial framework in which they agreed to give up a significant slice of this country’s hard-won rebate from the EU budget in return for no more than a half-promise of a review of agricultural policy, and they did not even manage to get that at the end of the day. We know that they were dysfunctional. According to the memoirs of the then Prime Minister’s chief of staff, the Prime Minister and Chancellor of the Exchequer could so little stand the sight of one another that they refused even to share the figures that they were using in parallel negotiations about an EU budget, the settlement of which was absolutely central to the interests of the United Kingdom. Having let down this country so badly in the past, it ill behoves the Labour spokesman to come and lecture us this evening.

Should this House not approve the motion unamended, I have to say to my hon. Friends that the consequences could be serious and damaging for Britain. The Prime Minster would not be able to signal support for the draft decision in March, and since the decision cannot be adopted without unanimity, it would fall. That would mean, for example, that this country would remain, for the indefinite future, indirectly liable for eurozone bail-outs through the EFSM since there would be no ESM to replace it.

Photo of David Lidington David Lidington The Minister for Europe

I will give way for a last time before completing my remarks so that other hon. Members can make their speeches.

Photo of David Nuttall David Nuttall Conservative, Bury North

Have we not missed an opportunity to include a specific provision to exclude the EFSM under article 122 of the treaty on the functioning of the European Union to prevent it from being misused, as it was previously? The article specifies providing financial assistance in the case of “natural disasters” or “exceptional occurrences”. We should have spelt it out—it was our opportunity to do that.

Photo of David Lidington David Lidington The Minister for Europe

Article 122(2) was interpreted by the then Governments of all 27 member states as capable of being used as a proper legal basis for the EFSM and we inherited that binding measure.

Photo of Martin Horwood Martin Horwood Liberal Democrat, Cheltenham

Article 122 mentions

“natural disaster or exceptional circumstances”, and the position certainly merits the word “exceptional”.

Photo of David Lidington David Lidington The Minister for Europe

We can debate whether that interpretation of article 122 was justified. However, the reality is that the mechanism had been established. I ask my hon. Friend Mr Nuttall to consider not only the fact that we inherited something that was legally binding, but that, if there had been some renunciation by the European Union of a mechanism, which, for all its imperfections, had given a measure of reassurance to the markets, there could well have been adverse consequences for eurozone countries, which would have had adverse consequences for United Kingdom companies and financial institutions with exposure and investments in those eurozone member states.

If we refuse to agree to the draft decision, the effect on our trading partners in the eurozone would not be helpful. I do not wish to speculate too much, but it is safe to assume that the markets would not view favourably a failure by the EU to establish a permanent support mechanism, especially when all 27 Heads of State had publicly set themselves a timetable that would conclude at the March European Council. The consequences for many economies that are already under pressure could be severe. The knock-on effect on the prospects for jobs, investment, growth and prosperity in the UK would also be severe.

I therefore believe that the case for approving the motion without amendment is clear. By supporting the adoption of this treaty change, the UK will support the members of the eurozone to establish a permanent mechanism, and thereby make clear the responsibilities of all members of the eurozone to each other and to the overall stability of the euro area.

We will ensure through our agreement that our current indirect liability for eurozone bail-outs ends in 2013, and because the mechanism is established using the treaty provisions specific to members of the euro area, it does not apply to us or other non-euro-area member states and cannot confer any obligations or duties on them. We will not be part of the ESM, and the treaty change does not therefore involve a transfer of competence or power from the UK to the EU. However, as I said earlier, I can pledge to the House that hon. Members will have the opportunity to scrutinise the decision in still greater detail, as the EU Bill requires parliamentary approval by primary legislation before the UK can ratify the measure.

Photo of Wayne David Wayne David Shadow Minister (Foreign and Commonwealth Affairs) 7:54 pm, 16th March 2011

There is no doubt that it is in Britain’s national interest to do everything we can to ensure that the eurozone is stable and prosperous. It was therefore right for the European financial stabilisation mechanism, the EFSM, and the European financial stabilisation facility, the EFSF, to be created last May. In those extraordinary and dangerous circumstances, it was necessary to take swift action. More than 40% of Britain’s exports go to the eurozone. If this country is to secure a strong economic recovery, exports to the eurozone must play a vital role.

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

I thank the shadow Minister for giving way. I wonder if he is correct. The history of economic crises shows that the countries that devalue and default first are often the first to recover. By sticking with the euro, Europe has therefore made a mistake and lengthened the period of distress for Ireland, Spain, Portugal and the other economies.

Photo of Wayne David Wayne David Shadow Minister (Foreign and Commonwealth Affairs)

It is for other European Union member states to decide whether they wish to be part of the eurozone, and there is no doubting their commitment to it.

When the dust had settled after the fraught days in May 2010, moves were made to establish a more permanent stabilisation mechanism, facilitated by a treaty change to provide a stronger legal base. That mechanism will come into force after 2013 and will replace the EFSM and the EFSF.

I find the procedure before us rather strange, to say the least. When or if the European Union Bill, which is currently in the other place, reaches the statute book, there will be a change to the relevant constitutional procedure, as the Minister explained, and the procedure that we are using this evening will no longer apply. Instead, we will have what is essentially a post-decision procedure. Treaty changes will require a statement to be laid before Parliament on whether the decision falls within clause 4 of that Bill. I understand that the treaty change to establish the European stabilisation mechanism would not fall within clause 4, so would not trigger a referendum. However, it would require an Act of Parliament. The Government have said on at least three occasions, and have confirmed this evening, that they would seek the support of the House, using the procedures of the European Union Bill, by introducing primary legislation. As the Financial Secretary to the Treasury said:

“The mechanism is not a transfer of power from Westminster to Brussels, so it does not require a referendum, but it will require primary legislation, which will be introduced in due course.”—[Official Report, European Committee B, 1 February 2011; c. 12.]

Given that commitment, I wondered why the Government were putting forward this motion at this time. The reason, of course, lies in section 6 of the European Union (Amendment) Act 2008, which requires that when a decision under article 48(6) of the treaty on European Union is proposed, a Minister must introduce a motion and have it passed by both Houses of Parliament without amendment. That must happen before the Prime Minister can give his agreement to the adoption of a draft decision at the European Council. In other words, for the Prime Minister to be able to give Britain’s support to this draft proposal at the European Council meeting at the end of next week, it is necessary to secure the approval of Parliament.

I want to make a point about procedure. I welcome what the Minister said earlier on this matter, and I hope that the Prime Minister will adhere to that if there is even the smallest change to the proposed amendment. I hope that that is truly a cast-iron commitment.

Photo of Bernard Jenkin Bernard Jenkin Chair, Public Administration Committee, Chair, Public Administration Committee

Is the hon. Gentleman saying that the European Union Bill will set aside the procedure set out in the 2008 Act, and that there will no longer be a requirement to bring draft Council decisions before this House before they are made? I think that he should invite the Minister to intervene on him to clarify whether that is the case.

Photo of Wayne David Wayne David Shadow Minister (Foreign and Commonwealth Affairs)

I would indeed welcome clarification on that subject. Indeed, I intervened on the Minister earlier and received no clarification. It is my understanding that the new procedure will supersede the procedure that we are using this evening, and that the procedure will be post-decision rather than pre-decision. I invite the Minister to clarify that.

Photo of David Lidington David Lidington The Minister for Europe

I am happy to provide clarification. The present decision is unique, in that it is being handled under the 2008 arrangements but will also become subject to the arrangements in the European Union Bill—assuming that it becomes law. The Bill, which we debated for seven days, will extinguish the 2008 arrangements, but it will ensure that after the adoption of the decision, in order for ratification to take place, the text agreed by Heads of State and Government at their final adoption meeting must go through all stages of primary legislation in both Houses.

Photo of Wayne David Wayne David Shadow Minister (Foreign and Commonwealth Affairs)

I thank the Minister for that clarification, but although there might be extensive post-decision debate, after the implementation of the Bill we will no longer be in a position effectively to give the Prime Minister a mandate. That is a step backwards and a negation of democracy.

Photo of Matthew Hancock Matthew Hancock Conservative, West Suffolk

The hon. Gentleman has just said that he believes it is an error not to have a mandate, but did the previous Government have a mandate when they signed up to the EFSM after losing an election?

Photo of Wayne David Wayne David Shadow Minister (Foreign and Commonwealth Affairs)

I have already referred to that point. The former Chancellor and Government were facing exceptional circumstances, and my guess is that if the current Government had taken over the reins at that point, they would have done exactly the same thing.

Photo of David Lidington David Lidington The Minister for Europe

The idea that the new system that will be introduced in the Bill is somehow weaker than the current one is laughable. An Act of Parliament is a much tougher form of scrutiny and accountability than a single vote before the initial decision is taken. Under the 2008 Act there would be no need for primary legislation before ratification took place. Furthermore, in extinguishing the 2008 provisions the Bill will extinguish the possibility of a disapplication procedure, which exists under the 2008 Act and would allow the Government of the day, by means of a motion such as the one before us this evening, to decide that its Head of Government could agree a change to a text without ever coming back to Parliament to give it a further opportunity to comment.

Photo of Wayne David Wayne David Shadow Minister (Foreign and Commonwealth Affairs)

I hear what the Minister says, but it does not alter the fact that we will no longer be in a position effectively to give the Prime Minister a mandate. Effectively, he will be able to do what he wants and have it retrospectively approved.

Photo of Jacob Rees-Mogg Jacob Rees-Mogg Conservative, North East Somerset

I thank the shadow Minister for giving way a second time. It is very generous of him.

Tonight’s debate came about initially because of a suggestion by the European Scrutiny Committee, which could continue to recommend draft decisions for debate in the House before the Prime Minister went off to negotiate, and then we could have a Bill later. I do not really think we have lost anything.

Photo of Wayne David Wayne David Shadow Minister (Foreign and Commonwealth Affairs)

I think that statement was really made for the Minister’s benefit, and it would be useful to have his response to it.

Photo of David Lidington David Lidington The Minister for Europe

What my hon. Friend Jacob Rees-Mogg said is absolutely true.

Photo of Wayne David Wayne David Shadow Minister (Foreign and Commonwealth Affairs)

I am glad that for once there is unanimity on the Conservative Benches.

I have two concerns that I should like to dwell upon related to the broader situation in which we find ourselves. The first is the fact that the countries of the eurozone have apparently established a new decision-making structure. The reasons they have done that are perfectly understandable, but it is worrying that the Government do not acknowledge that decisions taken by the eurozone countries could have profound implications for the UK. Take, for example, the issue of the single market. The development and completion of the market is of critical importance to Britain, but we have to be aware that there could be a temptation for the eurozone countries to see the single market in eurozone terms only.

In fairness, the conclusions of the Heads of State and Government of the euro area summit last week state that the new pact for competitiveness and convergence will respect the integrity of the single market in the euro area and the EU as a whole, and the involvement of the European Commission in the work of the euro area group should be a safeguard.

Photo of Peter Lilley Peter Lilley Conservative, Hitchin and Harpenden

Is the hon. Gentleman suggesting that eurozone members propose to break up the single market, which is established by treaty of all member states, and to impose borders, restrictions or differences between the rules that apply in eurozone countries and those that apply in the rest of the single market? If he is not, his point falls.

Photo of Wayne David Wayne David Shadow Minister (Foreign and Commonwealth Affairs)

I am not making that point at all, and with respect, the right hon. Gentleman has not listened carefully to what I said. The statement issued by eurozone countries makes it clear that they will acknowledge, respect and uphold the integrity of the single market. I am simply making the point that the development of the single European market is a key issue. It should be one of Britain’s priorities—it would be, if we had a proactive Government—to ensure that the single market continues to develop. My concern is that in future the eurozone countries, which are perhaps more tight-knit than the rest of the EU, could be tempted to extend the single market provision among themselves rather than applying it to other member states.

Photo of Matthew Hancock Matthew Hancock Conservative, West Suffolk

Is the hon. Gentleman therefore suggesting that the Labour party position is that the UK should be a part of the European stability mechanism, and therefore tied into bailing out eurozone countries, or does he agree with the Government’s proposal that the European stability mechanism should be for eurozone countries only?

Photo of Wayne David Wayne David Shadow Minister (Foreign and Commonwealth Affairs)

If the hon. Gentleman bears with me, I will tell him what I propose.

One sure way to prevent the single market from developing in a way that does not work to Britain’s advantage is for Britain to be involved in the current discussions. It is important for us to have an appropriate involvement in eurozone summits. I understand that countries such as Poland and Sweden, and even the Czech Republic, which has absolutely no intention of ever joining the single currency, have already indicated that they wish to be involved in those discussions. In contrast, Britain has made it clear—so I am told—that it does not want to be involved in any way whatever. I suggest that that is potentially harmful to Britain’s national interest, and therefore urge the Government not to close the door on our eurozone partners.

The second issue is another important and profound one. I have reservations about the economic and political assumptions that underpin this treaty change and the ESM. Let me be clear that the eurozone countries are correct in agreeing a permanent crisis mechanism. To that extent the treaty change is understandable, but my concern is that the ESM is part of a wider economic approach that is completely insufficient to address Europe’s deep-seated economic problems. Austerity, rapid economic retrenchment policies and fiscal consolidation will not of themselves create the kind of growth that the eurozone desperately needs. If all EU countries cut back at the same time, growth is likely to be sluggish at best. The hardest hit countries could find themselves facing stagnation, or even another recession. The risk is low economic growth and high long-term unemployment, with the poorest member states being hit hardest.

Of course, Europe has a 2020 strategy, which is supposed to be a 10-year strategy for jobs and

“smart, sustainable and inclusive growth”.

The stated aim of the strategy is to help Europe to deliver structural reforms and to recover from the crisis. However, although it is full of good intentions, the strategy plays second fiddle to Council and the Commission plans for deep economic retrenchment. It is clear that throughout most of Europe economic recovery is far from strong, and there is little evidence that private sector job growth will be fast enough to compensate for the huge number of jobs lost in the public sector. My concern is that the political and economic philosophy underpinning the treaty change and the ESM will make economic recovery in the eurozone both fragile and uncertain. As I said at the beginning of my speech, that is not in Britain’s best national interests.

These are important and serious reservations, and I hope that our concerns will be listened to carefully. Europe, including Britain, needs a coherent, well-thought-out growth strategy. Without that, the treaty change will fail to deliver the stability and prosperity that we all want.

Several hon. Members:

rose —

Photo of Nigel Evans Nigel Evans Deputy Speaker (First Deputy Chairman of Ways and Means)

Order. The debate will finish at 8.41 pm, so there is slightly over half an hour left. There will be no wind-up, so the allotted time is for Back Benchers. However, there is no time limit on speeches, so if Members could please show discipline and restraint, more people will get in.

Photo of Bill Cash Bill Cash Chair, European Scrutiny Committee, Chair, European Scrutiny Committee 8:10 pm, 16th March 2011

The essence of this debate is not just the technicalities, which we heard about at great length from the Minister, but something far more fundamental—the political landscape of Europe. The Minister knows it and the Foreign Office knows it. To give an example, there was a massive row between Nicolas Sarkozy and Mr Kenny about the terms of European economic governance only a few days ago. Furthermore, as was said this week in The Economist:

“Mrs Merkel has struck a Faustian bargain with France’s Nicolas Sarkozy.”

He knows that France is losing influence, and as one senior EU official commented:

“France needs Germany to disguise its weakness, and Germany needs France to disguise its strength”.

The fact is that we have the strength to prevent this hybrid treaty arrangement, which presents Germany with a predominant role. We have great sympathy for Germany’s predicament, given that it contributes so much to the European Union and is having to pay out so much. I have fairly regular meetings with German politicians, who tell me that if their country had the opportunity, it would almost certainly go back to the Deutschmark. There is a serious crisis in Europe, but the response is about the nature of a treaty, something in which this Government are acquiescing—it is not far short of appeasement.

The plain fact is that this is a serious moment for the future of Europe. This is a new, unprecedented situation, and it is accompanied by other proposals, which, as I understand it, will also be considered on 24 and 25 March, namely the proposals for the euro pact, which has otherwise been known as the competitiveness pact. However, nobody really knows exactly what the ingredients of it are, any more than they knew about the ingredients of the proposal that we are discussing this evening in its earlier stages. Indeed, I had to use an urgent question to extract from the Government the fact that it was even being made. That is the manner in which Europe works: by secrecy and behind closed doors. Indeed, there are already signs of committees meeting, and we are discovering—through leaks and otherwise—the manner in which they are going forward.

One element in all this is that, as my hon. Friends have rightly said, it would have to be determined by unanimity, so we would have the leverage to stop this juggernaut moving forward. I described it the other day as being like an aircraft carrier in comparison with a rowing boat, but we in Britain will not be regarded as a rowing boat by any means. If such arrangements were being made co-operatively by a voluntary association of nation states, I would be the first to say, “This is fine”, but they are not. They are being dealt with in the context of a legal treaty. We are parties to it, which is why clause 4 of the European Union Bill is such a disgrace. I say this with great respect for my right hon. Friend the Minister, but he talks about how we would be under no legal obligation and how there would be no transfer of powers or competences, but that is not the issue. The issue is whether the United Kingdom is affected. That is the point that I put to the Prime Minister repeatedly, and he cannot answer it. The fact is that the arrangements in question do affect the United Kingdom. They are matters of foreign policy; they are not just constitutional questions relating to sovereignty, competence and powers.

Photo of Martin Horwood Martin Horwood Liberal Democrat, Cheltenham

I hope that the hon. Gentleman appreciates that I am missing the Cheltenham festival to be in Parliament this week, which I do not mention flippantly. The festival is enormously important to my constituency economically, and it depends enormously on Irish euros to make it succeed. If in the long run the outcome of the stability mechanism adds some discipline and rigour to eurozone economies such as Ireland, can he not see that that would be of enormous benefit to the festival, to Cheltenham and to the whole of the UK, and should we not do everything in our power to facilitate it?

Photo of Bill Cash Bill Cash Chair, European Scrutiny Committee, Chair, European Scrutiny Committee

I was one of the first—in fact, I think I suggested that we should help Ireland through the bilateral Bill that we eventually produced. However, the Irish are now being put under pressure, at the dictation of Germany in particular, to reduce their corporation tax. That will not do much for the Cheltenham gold cup.

There is a serious problem, because the Government are effectively obscuring the nature of this measure by giving the impression that it is all about institutions. It is about realpolitik. In the days of Bismarck, the German states were brought together in a customs union. That was done for understandable reasons; I do not want that to be misunderstood. However, there is now a problem for Europe. Our problem is that, in the 43 minutes that the Minister spent addressing the House, he did not deal with the politics of this matter at all. That is most unfortunate. In every serious commentary on this issue, including those in the Financial Times, the real question is whether Germany is becoming increasingly predominant, and whether that is intentional or whether it is happening by accident and Germany is making the most of it.

Germany is making the most of the financial crisis to get a greater degree of political control, and the question of whether we can influence that by entering into an arrangement of this kind—which affects us even though we are technically excluded from it—is a serious foreign policy matter for the innermost parts of the Foreign Office. It is also a matter for this House. I believe profoundly that these issues, including the euro pact itself, are not being properly disclosed. The Minister might know what is going on, but we do not. We are not being told. We do not know what the strict conditionality affecting the other member states in the eurozone will be under article 138 as amended. The plain fact is that in that conditionality a crisis lurks. If over-severe conditions are imposed, we will have another crisis in Europe.

This is a bad treaty proposal. The leverage comes now, when we have the opportunity to say no. The Government propose that this will be dealt with in a Bill, but that will be far too late. The Government are acquiescing in this, and I regard that as a form of appeasement to the modern problems of Europe in the form of a predominant Germany, which is not in the interests of Europe, not in the interests of the United Kingdom, and not in the interests of Germany itself.

Photo of Denis MacShane Denis MacShane Labour, Rotherham 8:18 pm, 16th March 2011

I actually agree with some of what Mr Cash said: a lot of this does turn on Germany. We are told that the eurozone is a disaster zone, economically, but we can now see that Germany is succeeding rather well in the eurozone according to all the indices that matter: growth, falling unemployment and exports. I agree that Germany is playing its hand. I am worried about the German position on intervening in Libya, but that is the price we pay for—

Photo of Denis MacShane Denis MacShane Labour, Rotherham

Very briefly. I want to take up only two or three minutes.

Photo of Martin Horwood Martin Horwood Liberal Democrat, Cheltenham

I hope that, while endorsing the words of Mr Cash, the right hon. Gentleman will dissociate himself from the hon. Gentleman’s use of the term “appeasement” in connection with Germany. It was profoundly distasteful and quite inappropriate to this debate.

Photo of Denis MacShane Denis MacShane Labour, Rotherham

I thought Martin Horwood made an important intervention earlier this week about the Saudi invasion and occupation of Bahrain, but that is another point. I am sorry, but the hon. Member for Stone has put his finger on a very profound point, although I would not use the term “appeasement”.

I have affection for the Minister for Europe, who was like Horatio defending the bridge, fighting all by himself “for the ashes of his fathers and the temples of his Gods”, as the Tuscan hordes—the Eurosceptic hordes—bore down on him and tried to thrust him to one side in order to bring to bear their vision of what Britain should be like. This is a very serious development. The Government have used article 48(6) of the treaty of the European Union—the famous passerelle clause, which was not meant to be used.

We are agreed that part of the problem is connected with the budget freeze, about which the Minister spoke so passionately and proudly, but in exchange the President of France is going to get an absolute block on any common agricultural policy reform. Right hon. and hon. Members should have no illusions about that; if any part of Europe is frozen, it all tends to start freezing. In the agreed statement, although the new mechanism applies only to eurozone or euro-using members, it fully engages Britain. As the key statement we are debating tonight states:

“The Heads of State or Government of the euro area”— that is not us—

“and the EU institutions have made it clear… that they stand ready to do whatever is required to ensure the stability of the euro area as a whole. The euro is and will remain a central part of European integration. In particular, the Heads called for determined action in the following areas”, which were specified. The Heads of the European institutions speak for us. That means the President of the European Council. We appointed him, as we appointed the President of the European Parliament. Our MEPs elected him. I am afraid that this is not simply a matter solely and exclusively for the eurozone. Frankly, this might be a comfort blanket that my dear friend Horatio is trying to throw over the noisy bedsteads of the Tuscans behind him, but the fact is that this will commit Britain to take part in decisions that involve us as a nation.

When I said in a debate last week that the Prime Minister, after discussing the Libyan crisis on Friday, would be asked to leave the room, the hon. Member for Stone intervened, as some Members might remember, and read out a press release saying that the British Prime Minister would take part in these decisions on the architecture of economic governance of Europe as a whole. The hon. Member for Stone might care to recall that, last Friday, as soon as the Libyan discussions were over—they ended, frankly, in nothing, with bits of paper being waved around—the serious decisions of the European Council started and lasted all through Friday afternoon, Friday evening and Saturday. The Irish Prime Minister, the new one of the newly elected Government, went home, not achieving what the Irish people had voted for, but we were absent. This is what the Deputy Prime Minister rightly calls the “empty chair” policy of the present Government, which greatly worries me.

We will pass this legislation tonight, but I accept what the hon. Member for Stone said—this is a matter of high importance. I worry that we are slowly isolating ourselves from the main thrust of decision making in Europe. I think the Minister is putting up a firm defence. The Prime Minister, however, at Prime Minister’s Questions last week, dismissed the intervention of Mr Bone—I do not mean that unkindly, as I thought it was one of the nicest interventions ever. The hon. Gentleman appealed to the Prime Minister for an in-or-out referendum, but the Prime Minister effectively said on behalf of the British nation state that we are not leaving and that we are not going to a have a referendum, as we are part of Europe.

Photo of Denis MacShane Denis MacShane Labour, Rotherham

I have quoted the hon. Gentleman, so I suppose I should.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

I would like to correct the record. The Prime Minister gave his view on how he would vote in an in/out referendum, but he did not rule out either way whether we would have a referendum. He left that entirely open.

Photo of Denis MacShane Denis MacShane Labour, Rotherham

Yes, and I am going to win the lottery on Saturday! I think the Prime Minister was very clear that we are not going to have an in-or-out referendum and that we are staying in the EU. If we are to stay in the EU, it is better to work co-operatively and effectively in it. Unfortunately, the Government do not accept the consequences of their full membership of the EU. They are pretending—here we find that dear Horatio has been waving a wooden sword—that the measure before us somehow excludes Britain from future responsibilities. It does not; it will not: the European Union issue will go on and on for the rest of this Parliament.

Photo of Bernard Jenkin Bernard Jenkin Chair, Public Administration Committee, Chair, Public Administration Committee 8:25 pm, 16th March 2011

I intend to speak very briefly. First, let me thank my right hon. Friend the Minister for clarifying the procedural issues. I wrote in a note to colleagues that I understood that this would be the last occasion on which we could scrutinise the process before ratification. I now understand that that is not correct, although certainly the decision will be set in stone, and we shall not have an opportunity to change it unless we vote down the Act of Parliament that will be implemented. However, I should like one further clarification.

I understood that whatever amendment was made to the text of the treaties would require an Act of Parliament, regardless of whether the European Union Bill was passed, because that is the way in which we have always implemented treaty changes. To that extent, the EU Bill means no change. It would be a shame if we lost the opportunity to discuss matters before they go to the Council, but I accept the point made by my hon. Friend Jacob Rees-Mogg that it is up to the European Scrutiny Committee to bring them before the House.

In the few minutes for which I intend to speak, I shall concentrate on what was said by my hon. Friend Mr Cash and by Mr MacShane. The Government should be worried when there is agreement between those two Members. On this occasion, they agree that momentous events are afoot. My hon. Friend seemed to be saying, in so many words, that while we had always opposed the formation of a federal Europe which would inevitably be dominated by Europe’s major economic superpower—Germany—we were now facilitating the creation of a federal Europe, at least within the eurozone.

The text that we are approving states:

Member States whose currency is the euro may establish a stability mechanism to be activated”, and so forth, but there is no explicit exclusion of countries that are not participating in the euro in terms of its effects. What exactly is a mechanism? We have in mind some kind of bail-out fund, but the annex to the Council conclusions that were produced in December contains a draft decision that refers in more detail to what this instrument might actually concern. It states:

“The ESM will complement the new framework of reinforced economic governance, aiming at an effective and rigorous economic surveillance, which will focus on prevention and will substantially reduce the probability of a crisis arising in the future.”

All that sounds extremely beneficial and positive, but, as we know, the problem is that although specific sanctions do not apply to non-euro state, there is no exclusion of economic governance over all member states. Everything that the EU does implies that one day all its members will be members of the euro. That is clearly the direction in which it wants things to travel.

Photo of Mark Reckless Mark Reckless Conservative, Rochester and Strood

Is my hon. Friend aware that the issue is clarified by the decision made on 11 March on the pact for the euro? Annex I contains four guidelines. Guideline (b) refers to “Participating Member States” and guideline (d) to “Euro area Member States”. Guideline (c) states that we must consult our partners

“on each major economic reform having potential spill-over effects”, and that that applies to “Member States”, but it makes no reference to the euro or to participating. It does involve us.

Photo of Bernard Jenkin Bernard Jenkin Chair, Public Administration Committee, Chair, Public Administration Committee

I am grateful to my hon. Friend for pointing that out. It underlines the fact that we are at a crucial crossroads in the development of the European Union and our relationship with our European partners.

A few months ago I attended a private discussion, and those present included some very senior recently retired Government figures. One of them said—Chatham House rule, I am afraid—“You must be very pleased, Bernard, that the new Government are going to consider all this, because obviously there will be a consolidation of the eurozone area, and Britain will have to establish a different relationship with the European Union because we will remain outside it.” I said, “Well, I’d love to think the incoming Government have thought about all these things, but it seems that their minds are closed. I don’t think they want to think about this at all.” The result is that events are sweeping us along. We are not setting the agenda. The agenda is being set for us, and we are not even looking ahead at the consequences of what we are agreeing to.

That could have profound consequences for the future of our relationship with the EU. Indeed, I would say that it brings forward the inevitability of the United Kingdom finishing up having to make a dramatic in-or-out decision. If the Government have a lever in their hands but are still unwilling to exercise leverage to start drawing the distinction between those who want to consolidate the euro area and those who want to remain outside it, we do not have a European policy worth the name. We will therefore be driven into deciding on this binary question of whether we stay in or get out—and I hear that the Labour party may be beginning to flirt with the idea of holding the referendum that it denied the British people when it was in office.

We should consider the vote achieved by the UK Independence party at the recent by-election, as there has been a constant upward trend in every by-election since 1997. If we do not recognise that a part of the despair with politics that we experience in our daily contact with our constituents is a result of our powerlessness, and of our denial of the real choices and issues facing this country, we will drive those who feel such despair into the hands of more extreme parties than the mainstream ones where we all wish to be.

I leave the following thought with my right hon. Friend the Minister. As this Parliament progresses, this debate will not subside or go away. Instead, it will become more intense, particularly as the economic realities of the euro are based on denial. It is rather like the denial that there was for a period in respect of the European exchange rate mechanism before it broke up. However, because it is so much harder to break up the euro, the denial will go on for longer and the pain inflicted will be much more intense. There will be riots in the streets of European capitals before this situation is resolved, because I do not think it is possible for countries to make the kind of adjustment that the euro is currently imposing on them without the flexibility of separate currencies, which is why it is an accepted fact among many economists that at least some of the southern European states will leave the euro before this crisis is out.

Several Hon. Members: rose—Order

Photo of Steven Baker Steven Baker Conservative, Wycombe 8:33 pm, 16th March 2011

First, I wish to associate myself with the remarks of my hon. Friend Mr Jenkin. Too often, when addressing questions such as the one under discussion we get bogged down either in procedural matters or, matters that verge on the nationalistic, but this evening he has transcended that old territory and talked about what is good for the UK and Europe in broader terms. I shall attempt to add to his remarks.

If we wish to say something about what is going on in Europe today, we must talk about the broader sweep of political economy, and I therefore also refer to the remarks of my hon. Friend Mr Cash. We must say something about the EU, and I say this:

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

That is how the BBC reported the remarks my right hon. Friend the Prime Minister made in Prague in November 2007, which, coincidentally, was the month when I joined the Conservative party and approached my right hon. Friend the Minister for Europe to discuss becoming a Member of Parliament.

Photo of Steven Baker Steven Baker Conservative, Wycombe

I see that my right hon. Friend remembers that, but I suspect he regrets giving me the reference.

Photo of Steven Baker Steven Baker Conservative, Wycombe

I am most grateful for that.

We have talked about political economy, and great matters are at stake. It seems to me that there have always been two visions for Europe: a classical liberal vision and a vision of a so-called social Europe—an interventionist Europe. A classical liberal Europe would enable free movement of people, services and goods, all of which are to be applauded because we know that human flourishing depends on free trade and peace. The big question is: when did Europe become a social Europe, a socialist Europe and an interventionist Europe? Is it right that we put our faith in the omnipotence of government to solve all our problems and to deliver stability and prosperity?

With this measure, the European Union becomes explicitly a transfer union and is explicitly moving money and wealth around from one member state to another, and I suspect that Germany has very nearly had enough of it. We should not persuade ourselves that this is an entirely new phenomenon. I was most grateful to my hon. Friend the Member for Stone for giving me the opportunity to write in his European journal with a colleague and friend of mine, Professor Philipp Bagus, a German economist at a Spanish university. We explained how the European Union is inherently a monetary transfer union. By monetising their debts, profligate countries have been able to appropriate for themselves wealth from the productive nations such as Germany. This has been going on in a way that very few people understand for a very long time, and I believe that it has substantially contributed to the crisis that we are in. Having lived with this principle of redistribution by subtle means for a long time, we now seem to be explicitly adopting the notion of fiscal transfer union and direct economic governance.

Photo of Denis MacShane Denis MacShane Labour, Rotherham

May I invite the hon. Gentleman to read the Hansard record from 1984 when Mrs Thatcher brought back the rebate? My right hon. Friend Mr Straw said that she had hauled down the Union Jack and hauled up the white flag of surrender to Brussels. She replied that that was quite wrong, that it was right that we should transfer, and right that we aid Portugal and the poorer members of the EU. At times, I feel like a Thatcherite.

Photo of Steven Baker Steven Baker Conservative, Wycombe

I am grateful to the right hon. Gentleman for that, but the question is not whether we should help our friends in Europe, but how we should do so. Everybody here is interested in securing the maximum of human flourishing right across Europe—I do not doubt that—but the question is how to do that. Should it be done through the omnipotence of the state or through free trade, free markets and peace?

I believe in stability and prosperity for Europe, but I do not believe for one moment that the European Union is capable of delivering it. I finish by reading a quote from a great French liberal statesman. He said:

“The state is that great fiction by which everyone seeks to live at the expense of everyone else.”

If this measure goes through, Europe will indeed have adopted that idea and it will have done so very much to its disadvantage.

Photo of Peter Lilley Peter Lilley Conservative, Hitchin and Harpenden 8:38 pm, 16th March 2011

I am grateful for the opportunity to speak in this debate. I had not intended to do so, but I wish to set the Minister’s mind at rest. I can assure him that few, if any, Members who have reservations about this wish to block the treaty amendment incorporated in this motion. He rightly said that it is in our national interests that the eurozone should seek the maximum stability and be empowered to do so. He went on to say that we must therefore not impose any conditions in giving Europe permission to go ahead with this treaty change. That is a non sequitur. As long as we suggest reasonable and moderate conditions and concessions by way of repatriation of powers, there is surely no conceivable likelihood that Europe will forgo something of first order importance to it in order to prevent our having something that is of very minor importance to it. Would Europe seriously forgo establishing a stability mechanism for the euro in order to prevent our getting back powers over the working time directive? This is of second order importance to us, but of first order importance to Europe, so it provides an opportunity for us to seek concessions, and we should take that opportunity.

The second reassurance I want to give the Minister is that we on the Government Benches want the coalition agreement to be implemented. We see in the measure an opportunity to carry forward that agreement, which commits the coalition to a review of all the powers and competences that have been given to the European Community. The only purpose of doing so is to see which of them should be returned to this country. Many suppose that the Liberal Democrats do not really want that to happen. I am sure that some do not, but one of the joys of coalition for me has been getting to know more Liberal Democrats, and I know that many of them are quite pragmatic about this. One very senior member of the coalition Government has told me that he believes that 30 or 40 of the measures that were transferred in the Lisbon treaty and others should be returned. The whole coalition Government, not least the Liberal Democrats, are committed to the principle of localism. They want to see government in this country when it is not appropriate for it to be transferred, or if it has been wrongly transferred to Brussels in the past. This is an opportunity to secure the return of those powers and I urge the House to take that opportunity.

Question put.

The Deputy Speaker’s opinion as to the decision of the Question being challenged, the Division was deferred until Wednesday 23 March (Standing Order No. 41A).