Euro Area Crisis: EUC Report — Motion to Take Note

Part of the debate – in the House of Lords at 6:37 pm on 21st May 2012.

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Photo of Lord Maclennan of Rogart Lord Maclennan of Rogart Liberal Democrat 6:37 pm, 21st May 2012

My Lords, it has been a privilege to serve on the Select Committee and to participate in at least some of its deliberations on this subject. I thank the noble Lords, Lord Harrison and Lord Roper, for presiding over those deliberations at a time of great sensitivity and urgency to deal with these matters. The Select Committee's report was published in the aftermath of the Prime Minister's walk-out from the December seminar. Although that diplomatic mistake has had the lingering effect of diminishing Britain's influence on decision making by the European Union, I do not wish to rake over the failure to disclose to the committee the interests that the Prime Minister was allegedly seeking to protect. Suffice it to say that the reasons subsequently advanced by the Chancellor of the Exchequer in his letter to the chairman of the Treasury Committee of the House of Commons were wholly unconvincing. As that letter makes clear, significant levies on the financial sector,

"are subject to unanimity under the EU treaty".

The Prime Minister was playing to a domestic gallery, not seeking to take forward the decisions that had been taken in principle by the October summit. It was a failure of the worst kind.

The Government's response to the committee's report has some positive proposals that I commend and welcome. In particular, the Government claim that they are "leading the growth agenda". I think some of the remarks by the noble Lord, Lord Monks, about how we might lead it rather better should be taken on board by the Government. The answer to the report makes it clear that there are certain longer-term goals in respect of reforming the single market that could have a beneficial impact on our economy and some of those areas most under stress at this time. For example, in services there is huge overregulation in the domestic law of too many European Union countries, notably Germany. Digital union within the trade area is now likely to be achieved by 2015. That is a little way down the track, alas. The agenda also includes energy, which is a noticeably disrupted economy, with member countries taking very different views of it.

It is also good to notice in the Government's reply support for a European research area and global openness via the EU free trade agreements with trading partners. These are positive. Although the December diversion from the urgent need to particularise and embed the principles agreed at the October meeting caused further delay in coming to grips with the euro area crisis, we are not alone in having been too tardy in responding. Indeed, the German and French attempt to water down the Basel III capital rules as they apply to Europe, even within the past month, must also be regretted. It seems clear that member countries of the Union have not faced up to the seriousness of the crisis in a coherent and constant way, with a direction set by their heads of government.

Major decisions are now required. One is on the Greek debt write-down. A second is on bank recapitalisation and the financing of the European Union rescue funds. These have been too long postponed. As the noble Lord, Lord Harrison, pointed out, the European Central Bank has been inventive in purchasing government bonds of euro area countries in financial distress from the secondary market; in coming together with the central banks from outside the area to help provide liquidity support; and in the long-term refinancing of operations-the LTRO-which provides 500 European banks with nearly €500 billion via three-year loans at very low interest rates. However, it is clear-particularly so because of the current Greek crisis-that this has not been enough.

It is worth noting in passing the evidence given to the committee by the former Prime Minister of Italy, Giuliano Amato, that although fully fledged Eurobonds were not part of Germany's current thinking, mutually guaranteed project bonds for specific pan-EU projects, such as the development of the European power grid, should be given consideration. I should like to hear from the noble Lord, Lord Sassoon, when he winds up, whether the Government are giving serious consideration to that suggestion, which seems to be one that should treated favourably.

Most commentators viewing the results of the Greek elections have considered that the Greek Government's exit from the eurozone is now much more likely. The Greek opinion polls suggest that there is a growing recognition that the consequences for Greece would be disastrous. It is impossible to predict what may happen by 17 June. However, what is to be done now?