‘The Chancellor of the Exchequer shall make a report to Parliament within one year of the Act coming into force and annually thereafter setting out an assessment of the impact of the European Stability Mechanism on the economic performance of the European Union.’.—(Emma Reynolds.)

Brought up, and read the First time .

I beg to move, That the clause be read a Second time.

New clause 3 would require the Government annually to update the House on their assessment of the impact of the ESM on the economic performance of the EU. Our economy and those of the member states of the eurozone, as well as those of the wider EU, are closely entwined through trade and our financial sectors. We also use the collective weight of the EU to negotiate free trade agreements with both developed and emerging economies. We therefore believe that it is reasonable to require a regular update from the Chancellor on how the ESM arrangements are affecting our major trading partners in the EU.

We welcome last week’s decision by the European Central Bank to set out its approach to outright monetary transactions, which is an example of the lender-of-last-resort role that such a eurozone central bank ought to have reached many months ago. However, the operation of OMTs will be tied to the operation of the ESM. It is therefore imperative that the operation of the ESM is undertaken appropriately and that any strict conditionality does not harm the delicate path back to economic growth.

As we explained on Second Reading, we are in favour of the Bill, which provides for the treaty change necessary to enable the establishment of the ESM by the eurozone, but we have concerns about the conditionality of the ESM. We will continue to argue that ESM and ECB support needs to avoid the punitive austerity that undercuts confidence and demand in an economy, pushes an economy back into recession, reverses the generation of tax receipts and increases welfare costs. Regrettably, that is exactly what has happened in the UK due to the severe austerity that our Government have chosen to impose, despite the fact that the Business Secretary admitted yesterday that there is a problem of demand in the economy and despite the fact that he and his party agreed with us before the general election that cuts that went too far and too fast would choke off the recovery.

The question of ESM conditionality is at the heart of the divisions between right-wing and centre-left Governments across Europe. Germany holds a veto on the operation of the ESM, because its share of contributions converts to a blocking vote share. Germany’s representative on the ECB board was the only dissenter to the new ECB policy on OMTs that was announced last week and, incidentally, this week its constitutional court is expected to rule on whether the ESM is constitutional according to German law.

Although the ECB policy has been adopted, there remains the prospect that it cannot be implemented without stringent austerity conditions because of the tie-in to the operation of the ESM. It is therefore imperative that the ESM remains under close scrutiny by our Government and by Members of this House and the other place. With more than 50% of our export trade going to the wider European Union, we are affected significantly by decisions taken on the ESM. For that reason, we believe that a routine annual process for monitoring developments in the EU economy is of great importance. We believe that new clause 3 would allow that to happen.

New clause 3 would require the Chancellor of the Exchequer to make a report to Parliament, within a year of the Act coming into force and annually thereafter, setting out an assessment of the impact of the ESM on the EU’s economic performance. To some extent that touches on issues similar to those we addressed when debating the Opposition’s previous two new clauses.

My argument to the Committee is that the requirement the Opposition are seeking to impose on the Government is simply unnecessary and otiose. The ESM treaty—the intergovernmental treaty among the 17 eurozone member states—requires the publication of annual accounts, so we fully expect information on the financial assistance that will be provided by the ESM to be made publicly available. That would be done in the same way that information on the use of the EFSF and its financial assistance programmes is currently made available on a public website. Furthermore, every EU member state is already required, as part of the assessment known as the European semester, to submit annually to the Commission a report on its own economic plans and performance. Therefore, the information that the Opposition are seeking will be in the public domain anyway.

We seem once again to have a proposal that would create an unnecessary reporting obligation and use civil service time in the UK on a mechanism of which the UK is not part. Parliament, through its Select Committees, the scrutiny system and the powers of the Backbench Business Committee, will continue to have plenty of opportunity to require Ministers to come to the House to be held to account for Europe’s economic performance and the United Kingdom’s place in shaping the EU’s economic policies. We do not need the new clause to give Parliament those powers. I hope that the Opposition, on reflection, will choose to withdraw the motion.

The objective of new clause 3, as I have set out, is for the Government to monitor closely and assess the impact of the European stability mechanism on the wider economy of the European Union. Our economy is closely connected to the other 26 economies of the EU, with regard to both trade and, crucially, our banking sector. Our banks are heavily exposed to developments in the financial sectors of the other member states. It is therefore important that the Government allow the House to scrutinise the impact of the ESM, as well as their own decisions on the level of influence they choose to have on these discussions, even though we are not a member of the eurozone. It is not our policy that we should join the euro, just to clarify that for the Minister once more. Even though that remains the case, as a big member state in the European Union we should have a significant voice in all its developments, including the conditionality imposed on eurozone member states that seek support from the European stability mechanism.

Such matters may not be our primary responsibility as a non-eurozone member state, but we would nevertheless like the Government to be less isolated and to have more influence on the discussions about conditionality, because, as I set out earlier, we have reservations about the harsh austerity that is being imposed on Greece and other member states and that will probably be attached to support from this fund as well as previous mechanisms. It is for that reason that we tabled new clause 3. We believe that it is important that the Chancellor of the Exchequer monitors these developments closely and gives this House the opportunity to comment on and debate them.

Question put, That the clause be read a Second time.

The Committee divided:

Ayes 172, Noes 265.

Question accordingly negatived.

The Deputy Speaker resumed the Chair .

Bill reported, without amendment .

Third Reading

I beg to move, That the Bill be now read the Third time.

I want to begin, as is customary, by thanking those right hon. and hon. Members who have taken part in debates on the Bill. Even though it contained just two clauses, many Members have raised a number of interesting and controversial points about the context and impact of the European Council decision that the Bill seeks to approve. I am delighted that the Bill stimulated such parliamentary interest. It is difficult to single out any one Member—I apologise to any whom I do not mention—but I want to place on record my thanks to my hon. Friend Mr Cash and the European Scrutiny Committee. The whole House has benefited from his knowledge and his long held and principled approach to these matters. Although the Government do not always take the same view as he and his fellow Committee members on every point that they raise, the Committee has fulfilled its role commendably.

On the Opposition Front Bench, Mr Alexander and Emma Reynolds clearly articulated the Opposition’s position on a number of matters and indicated their support for the Bill, for which I am grateful.

My hon. Friends the Members for Harwich and North Essex (Mr Jenkin), for Camborne and Redruth (George Eustice), for North East Somerset (Jacob Rees-Mogg), for Stroud (Neil Carmichael), for Hertsmere (Mr Clappison), for Rochester and Strood (Mark Reckless), for Basildon and Billericay (Mr Baron) and for Peterborough (Mr Jackson) have all played a part in debates on the Bill. I value the intelligence and thoughtfulness that they have brought to those debates. I also pay tribute to my hon. Friend Martin Horwood, who ably represented his party and powerfully made the case for the Bill from a perspective slightly different from that of some of my party colleagues.

I turn to Opposition Members. I thank the hon. Members for East Kilbride, Strathaven and Lesmahagow (Mr McCann), for Swansea West (Geraint Davies) and for Caerphilly (Wayne David). I also thank Kelvin Hopkins, without whom no debate on these matters could be complete. I also put on the record my gratitude for the outstanding work done by officials, at both the Foreign and Commonwealth Office and the Treasury, in putting together this legislation.

As was set out on Second Reading, the purpose of the Bill is simple and straightforward. It provides solely for the parliamentary approval of an amendment to article 136 of the treaty on the functioning of the European Union. That proposed treaty amendment makes it clear that eurozone member states may establish a financial assistance mechanism—the European stability mechanism, or ESM. In other words, it says that the eurozone can support fellow eurozone members in financial difficulty without contravening their obligations under the EU treaties.

Although article 136 applies only to member states whose currency is the euro, and therefore not to the United Kingdom, it is in our interests to ratify the European Council decision to amend it for two reasons. The first is that the ESM will play an important role, providing the eurozone with a permanent financial assistance mechanism to assist eurozone member states in financial difficulty. It will help eurozone countries work towards stability. Stability in the eurozone is crucial to our own stability in the UK. Although I accept all the points made in our debates about the measure not being a panacea and the European Union needing to do many things to make itself much more competitive and to stimulate economic growth in today’s rapidly changing global economy, the Government believe that the measure is one significant step towards helping stability in the eurozone, which will assist the United Kingdom’s economy.

Secondly, the passage of the treaty amendment will bring a direct benefit to the United Kingdom and our national interest. My right hon. Friend the Prime Minister secured an important agreement alongside the treaty amendment. In future, the UK will not be liable through the EU budget for any future eurozone bail-outs under the EU budget once the ESM comes into force.

The treaty amendment was considered by Parliament before the Prime Minister agreed to the treaty amendment decision back in March 2011; at that time, we handled the decision under the provisions of the previous legislation, the European Union (Amendment) Act 2008. At the time, I committed to bring the decision before the House a second time, under the more stringent parliamentary scrutiny of what was then the European Union Bill and is now the European Union Act 2011.

The Bill has been introduced to gain parliamentary approval to enable the UK to complete its ratification process for the treaty amendment through primary legislation, which enables Members of both Houses to debate in detail the implications of the treaty amendment in a way that was not possible under the 2008 legislation, which made provision only for a time-limited debate on a motion before each House.

The treaty amendment is due to enter into force on 1 January 2013, subject to ratification by all member states. Parliament’s approval of the Bill will take us one step closer to ensuring that that happens. It is important that we do not put any artificial obstacles in the way of that happening.

Members have examined and challenged both the brief content of the Bill and the wider impact of agreeing to the treaty amendment decision, as was our intention when we introduced the European Union Act 2011. Although we have heard a broad range of views on the rights and wrongs of the eurozone, on the EU and on the UK’s place in Europe, one thing that has found general agreement on both sides of the House is that approving this Bill makes sense. Agreeing to the treaty amendment is in our best interests because it will extinguish our future exposure to liabilities under the European financial stability mechanism. For those reasons, I hope that the House will give the Bill a Third Reading this evening.

As the Minister explained, the Bill is narrow and specific. It is very short, but very important. I should like to say a few words to put it in a broader context. I was a Member of the European Parliament for 10 years. I was elected in 1989, so I saw the completion of the single market. I well remember Lord Cockfield, Commissioner for the internal market from 1984 to 1988, arguing forcefully for the completion of the single market. I also remember the Cecchini report, which was essential in winning the necessary ideological battle for progress to be made on the single market.

At that time, many of us in the socialist group at the European Parliament had reservations about how it was envisaged that the single market would develop and concerns about the widening gap between the rich and poor parts of the European Union. The response then was to enhance the structural funds. In particular, the cohesion of funding was brought forward to address initially the concerns of the four poorest member states and it expanded in size to encompass some of the new countries coming into the European Union. As we all know, the Maastricht treaty was in many ways the logical conclusion of what people saw as a journey from the creation of the single market into a fully fledged economic and monetary union.

Britain, of course, had its famous opt-out and that was probably right. That was certainly recognised by the Labour Government elected in 1997. The five economic tests came forward. A judgment had to be made on joining economic and monetary union. Would it provide the United Kingdom with higher growth, stability and a lasting increase in the number of jobs? It was decided that those criteria would have to be met if Britain were to join EMU.

It is important to stress that although there were economic concerns and reservations, there was a tremendous political impetus in favour of economic and monetary union. That was clearly demonstrated when Greece was allowed to join EMU in 2001. Everything was okay as long as the world economy, and the eurozone economy as it developed, were doing well. But the chickens came home to roost with the monetary collapse of 2008 and the consequences that emanated from it. With the benefit of hindsight, many people would probably argue with the way in which a single currency was created and the speed at which that movement was made, and with the fact that many countries, particularly Greece, were allowed to join it without proper economic consideration being given to that. Nevertheless, the political impetus was there.

Now, of course, the question is how we deal with the problems that have arisen in recent times. It would be a huge mistake if the voices of the Eurosceptics were taken seriously and we stepped back into splendid isolation and not only refused to participate in the European venture but wished the end of the eurozone. I say that not because of any ideological commitment to the idea of the eurozone but because I realise pragmatically that a successful eurozone is important for the British economy and the British people.

I was not planning to intervene in this debate, but I do so because the hon. Gentleman refers to ignoring the voices of Eurosceptics. Those are the voices of what appears to be the majority of people in this country, if one believes the polls. Perhaps we should allow the public to have a say in a proper referendum, and then it would be for them to decide whether we want to draw back from the EU rather than having pro-Europeans patronising the country about what we should or should not do in relation to Europe.

I think that most people in this country are concerned about its economic well-being. Yes, they are concerned about our national sovereignty; even people who describe themselves as pro-European do not want to give up British sovereignty. Many people see the European Union as essentially a mechanism to pool sovereignty in the collective best interests of those who live on that continent. It is important for that spirit to be carried forward in how we relate to the current difficulties in the eurozone.

I generally welcome the pragmatic way in which the Government have gone about establishing the ESM. As the Minister said, nobody would claim for one moment that the ESM, by itself, will solve the problems of the eurozone—it will not—but it is one important step towards resolving them. I therefore hope that this House will give its endorsement to it. However, to take his comments further, the ESM is not enough. It must be monitored, examined and possibly extended in some way if there is a need for that in future, but we must also pursue policies collectively that will enhance the competitiveness of the European Union.

Just as importantly, we need a growth strategy. That is the crucial issue that faces the peoples of all countries within the European Union. If recent history teaches us anything, it is that austerity by itself is not enough. It is not enough in this country—that is why we are in a double-dip recessions—or in the eurozone. I very much hope that there will be an increasing question mark over the German-led policy of austerity above all else. We need to make sure not only that we have reasonable public finances, that the debt burden on our neighbour countries is reduced and that there is competitiveness, but that our economies are collectively stimulated. That is in the best interests of this country. I believe that if the ESM is agreed, it will be an important step towards a more prosperous Europe for us—but it is only one step.

I congratulate the Minister on his magnificent handling of the Bill. I am very pleased that he stayed in his place in the reshuffle, because his expertise in matters European is now encyclopaedic. I am sure that the quality of our debates and his contributions has not reduced, but these European Bills are certainly going through faster, as we seem to have got through this one at great speed.

The contributions of Emma Reynolds have been positive and constructive, and there has been a great deal of consensus, even extending at times to some traditional Eurosceptics. I was very impressed to see the hon. Members for North East Somerset (Jacob Rees-Mogg) and for Camborne and Redruth (George Eustice) among those who have been supporting the Bill during its passage. That is as it should be, because this should not be a controversial piece of legislation. We are not going to be part of the ESM intergovernmental treaty; we are merely seeking to facilitate eurozone members in trying to find their way out of what is still an extremely serious crisis.

That has to be in the British national interest, because whether we like it or not— whether or not we are a member of the ESM or the eurozone, or even of the European Union—we are inevitably and inextricably linked to the whole European economy. Some 50% of British trade, worth £450 billion a year, is with other EU member states. Over 100,000 British firms export to other EU countries, 94,000 of them small or medium-sized enterprises. Over 200,000 UK companies trade with the EU every year. Over 50% of our foreign direct investment comes from other EU member states, worth more than £350 billion a year, and over 50% of companies investing in the UK cite the UK’s membership of the single market as a core reason for doing so. The fate of the European economy is inextricably tied up with our own fate and with our ability to grow and to recover from the financial crisis that has affected the whole continent.

This is, in its own small way, an historic Bill. It is the first use of the European Union Act 2011, which sought to strike a balance between Liberal Democrat enthusiasm to maximise the benefits of EU membership and Conservative caution that we take not one step without adequate parliamentary scrutiny and, if necessary, legislation, and without the option of a referendum if power were being transferred from the British level to the European level. No such referendum is necessary on this occasion, as this is merely a Bill to ease the passage of the intergovernmental treaty for other members of the European Union. However, the full panoply of parliamentary scrutiny of legislation has been brought to bear even on this small, technical change.

As the Minister rightly said, the treaty that will, we hope, follow the Bill at European level will not be a panacea even for ESM members and eurozone members. It will not, of itself, solve the deep and serious problems of the European economy, which relate to competitiveness, lack of growth, and debt. These complex, interacting problems still pose a real and present danger to the whole European economy, including this country’s economy. We have not in any way solved those problems in the few days that we have spent debating this Bill, but perhaps we have made one small contribution to the start of the journey towards doing so.

Without wishing to astonish my right hon. Friend the Minister, it will be my pleasure to support the Government on this European matter, for all the reasons that he has set out. I am very grateful to find myself in the company of my hon. Friend Jacob Rees-Mogg.

However, I want to place on the record my profound misgivings about the huge centralisation of economic power, almost entirely beyond economic control or legal challenge, that is going to take place in Europe. The European Union has not abolished economic nationalism; it has simply raised it to the continental scale, just in time to be in danger of a currency collapse. Our friends in Europe are potentially entering into a dreadful error from which it may be that democrats and liberals should recoil in horror. I wish that they were not doing so, and I look forward to the judgment of the German constitutional court.

I commend to my right hon. Friend the initiative for a free and prospering Europe that is being proposed by my friends in eastern Europe, which asks for a radical decentralisation of economic power. Europe is going in entirely the wrong direction with the ESM. I wish it were not, and I am very glad that the Government are liberating us from any liability in relation to this monstrous mess.

It is a real pleasure to speak in favour of this Bill, because it is surprisingly important. The more we have debated it, the more clear its importance has become. It is important because it saves the British taxpayer risking substantial amounts of money. When the treaty was agreed, I was disappointed that we had not asked for more, because Her Majesty’s Government had a strong negotiating position and might have been able to start the process of renegotiation and ask why we did not have a more à la carte Europe, to use a French term, if I may, Mr Deputy Speaker, against the preferred guidance of “Erskine May” that one should stick to English.

The Government have achieved something considerable by appearing to be very modest. We have seen the clawback of powers from Europe for almost the first time. Under article 122 of the Lisbon treaty, we had opened ourselves up to substantial and potentially unlimited liabilities for the failures of the eurozone. Once it was accepted that article 122 could be used for emergency bail-outs and the regulation was not challenged, it was conceivable that further regulations could be introduced and that, although each one would have been subject to challenge individually, once the first was accepted, there could have been a continuous chain of bail-outs, resulting in billions and billions of pounds’ worth of liabilities for us.

If I may make a cheap party political point—there is an occasion for such a thing—it is worth noting that it was the previous Labour Government who signed us up, during their dying days, to this almost unlimited liability.

It is always a pleasure to intervene on the hon. Gentleman. I have in my hand an explanatory memorandum by a previous Economic Secretary, who is now the International Development Secretary. It states:

“The Government regrets that the Scrutiny Committee did not have time to consider this document”— meaning the document on the establishment of a European financial stabilisation mechanism—

“before it was agreed at Council. It should be noted that whilst agreement on behalf of the UK was given by the previous administration,” to which the hon. Gentleman has referred,

“cross-party consensus had been gained.”

When the hon. Lady started with, “I have in my hand”, I thought she was going to say, “a piece of paper”, and that we were going to be promised peace in our time, but, sadly, she offered party political disagreement instead. It was more like a battle than peace. All I would say is that the Government of the day were Labour. I accept that the incoming Government failed to challenge the use of article 122—they should have done that and it was a pity that they did not—but that was where we were: socialist extravagance spending our money and signing us up to bailing out the whole of Europe over and over again.

What did we get in place of that? We got a sound Conservative Government, with the help, for once—the worthwhile, marvellous and delightful help—of our Liberal Democrat coalition partners, who were robust enough, which some might say is most out of character, to support us in getting powers back from the European Union, which has almost never happened before. That is important because the whole basis on which the powers of the EU have been built—the acquis communautaire—has been one whereby it gets powers and never gives them away again. It is the doctrine of the occupied field that once Europe has taken over a policy area, it is in control of it and it never goes back to the nation state.

It is therefore a real triumph for the Government to have got this agreement on the treaty on the functioning of the European Union and that the article 122 mechanism has been cast to history. Although that is not being said officially—we do not have a signed document saying that article 122 will not be used—we have a very strong political agreement between all the Heads of Government and Heads of State, signed up to by the Commission, and, most importantly of all, a new mechanism.

The other good thing about the mechanism and the treaty approach that has brought it to us is that we have a proper parliamentary procedure to ratify it. It is so marvellous and commendable of this Government that they are taking parliamentary accountability and democracy seriously. They could have done it differently. They could have just bulldozed it through on a quiet Wednesday afternoon in a debate lasting an hour and a half or two hours, but they chose not to do that. They introduced a Bill that required a proper process and they actually allowed time for the debate—so much time that we may even finish early. That is another good argument for parliamentary scrutiny—time is not used up unnecessarily in the House of Commons; it is used for proper consideration of what the Government are doing.

This new Session’s resolution can therefore be: let us support this marvellous Government and let us support the Front Bench and Treasury Bench representatives as they go boldly forth. They stand up, show backbone and act like a lion—not, as somebody may have once said, like Bagpuss—against Europe. They make sure that the British position is put clearly and forcefully and that powers are returned home.

There is a great lesson for Her Majesty’s Government in this: when they show backbone, force and courage, not only do they receive rapturous support from Members on the bustling Back Benches, but they receive support from the country at large. As the Brussels directives are sent away and batted back home, so the opinion poll rating rises. I hope that the Government will learn from this and act on it in future.

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

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

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

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

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

As the OECD stated last week,

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

It continued that

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

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

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

The OECD has emphasised that:

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

It also stated:

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

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

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

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

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

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

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

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

People in the markets have a much shorter-term view than is generally suspected. They will always be grateful to know that there is a willing buyer with unlimited funds for whatever they are holding.

I agree that they will be happy about that. That is why it is important that what the ECB president set out last week is carried through and supported by the eurozone Governments. It must not be seen as an announcement that will come and go. I believe that Mario Draghi and the ECB have set out important steps that have been needed for some time to provide a back-stop for the single currency.

The ECB’s announcement was made alongside the fact that it would impose conditions on the buy-outs of bonds. There is concern in some countries that they will not be able to meet those conditions. Is my hon. Friend Steve Baker not right that the market is taking a very short-term view? Unless there are strict fiscal conditions so that the situation improves, the buy-outs of bonds will not solve the problem.

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

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

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

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

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

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

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

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

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

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

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

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

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

Question put and agreed to .

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