My Lords, I speak as a second steed, with flaring nostrils, under the whip of the noble Lord, Lord Boswell, as our ringmaster for the six sub-committees reporting to him. Perhaps I may add to the praise given by the noble Lord, Lord Tugendhat, and say that the strategies that the noble Lord, Lord Boswell, deploys include having a large range of anecdotage from which he chooses appropriate anecdotes for the various six sub-committees to calm our nerves and to encourage us.
Perhaps I may pick up one point that the noble Lord has made, about the worth of the examinations made by the sub-committees of his European Union Select Committee. They are of a very high standard. We are regularly told that they are read throughout Europe and the United Kingdom, and I may say that they present a sharp contrast to the poor, low and risible level of examination of items important to the United Kingdom which is performed at the other end of this Palace. I say so because the noble Lord, Lord Boswell, has made reference to the tripartite meetings whereby British Members of the European Parliament meet MPs from the other end and your Lordships. It is quite clear there that the conversation is between your Lordships, who have a grasp of the important European items, and those who hold dossiers in the European Parliament—and there is a third and absent partner.
I offer an apology to the noble Lord, Lord Boswell, for the fact that, through an accident which was partly of my making, he was excluded from the debate which we held last night on the euro area financial crisis. I feel this all the more tellingly because he it was who in 2010 asked Sub-Committee A to report back to the Select Committee on “What did you do in the financial crisis?” I believe we have done well in reporting and having six-monthly looks at the developing problems, which have now, fortunately, subsided. I am extremely sorry that he was not able to attend last night and I put that on record.
I will try to abbreviate some of the things I have said. One of the important items was the financial transaction tax. We thoroughly examined and re-examined the threat to this country, and particularly to the City of London, which we have highlighted in terms of that tax. It could be really quite an unfortunate tax that works adversely in the European Union and to the detriment of financial services in this country. I recently met with the Prime Minister of Slovenia and the central bank governor of Slovenia, who was in Parliament this Monday, to ask them why Slovenia has withdrawn from being one of the 11 countries going forward with the financial transaction tax. That takes it down to 10; getting near to the nine where enhanced co-operation can be permitted to proceed. I will not say any more on the FTT, which has had much interest in this House.
Regarding ‘Genuine Economic and Monetary Union’ and the Implications for the UK, we heard evidence between May and November 2013 from a wide range of witnesses across the EU. We collected valuable evidence on visits to Brussels, Berlin and Frankfurt—where we visited the European Central Bank and the Bundesbank. Our report was published in 2014 and found that genuine economic and monetary union was highly contentious yet banking union was vital to tackling the effects of the financial crisis. However, what had been agreed at that time was insufficient to break the vicious cycle linking banking and sovereign debt. We also noted the strong case for some fiscal transfers and debt mutualisation, but concluded that the proposals for an integrated budgetary and economic policy faced widespread political opposition. Although the full vision remains a distant prospect, the eurozone is on the road towards greater integration already. The implications for the United Kingdom are immense. A strong and prosperous eurozone is in the interests of all EU members, as is a strong and engaged United Kingdom.
After the report was published, the co-legislators reached agreement on the next leg of banking union—the single resolution mechanism. In correspondence with the Minister, the sub-committee noted that the deal went some way towards addressing the concerns it had set out in its report, including the shorter mutualisation period for the single resolution fund and a somewhat more streamlined decision-making process. However, the sub-committee warned that the resolution process remained complex and there was a risk that funding, at €55 billion, would be inadequate to deal with the scale of bank failures witnessed in recent years. This report was debated in the House on
As I have mentioned, our summary of the euro area crisis has been developed over the years. We heard most recently from the former Prime Minister of Italy, Mario Monti, Erkki Liikanen, not only a former Commissioner himself but now governor of the Bank of Finland, Sir Jon Cunliffe, our man in Brussels who is now the deputy governor for financial stability at the Bank of England, and Gerard Lyons who is the City’s—Boris Johnson’s—economic expert. The sub-committee found that there were indeed welcome signs that the crisis had eased, but it would nevertheless be unwise to conclude that the storm has entirely passed. As I have said, we had a debate on it last night and colleagues will be interested to consult that.
There were other significant pieces of work, including on shadow banking. The sub-committee undertook detailed scrutiny of the Commission’s documents, which
I will not list here. We heard further evidence from the European Commission—we previously heard from an absolutely outstanding Spanish lady who was a veritable expert on budgetary matters—and from the CBI on the proposals. We sent an extensive letter to the Government in April, asking for their views on defining shadow banking, the size of the shadow banking sector, the benefits and risks of shadow banking and the global regulatory response. It is something to which we will have to return.
Towards the end of the 2013-14 session, the sub-committee commenced its examination of the European Commission’s proposals for banking structural reform, contained in the regulation on structural measures improving the resilience of EU credit institutions. The sub-committee heard evidence during April and May from the European Commission and senior banking sector representatives. It continues to scrutinise these important proposals in the new Session, and has exchanged correspondence with Ministers on issues such as the ban on proprietary trading, the structural separation of banks, and the impact on the UK and the derogation provision.
We have also been dealing with the 2015 draft budget and the draft amending budget for 2014. Again, a huge backlog of outstanding payments to member states has accumulated: €23 billion which the Commission is required to pay, including €1.3 billion relating to the UK. The front-loading or prioritisation of payments for certain EU programmes leading to undue pressure in later years has been another of our concerns, as has the use of an emergency pot of funds called the contingency margin to make ends meet in the mean time. Again, we will have to return to this.
Finally, we have embarked upon a new inquiry into the EU financial regulatory framework. The majority of the reforms having been introduced within the EU, it is an apposite time to step back and assess the strengths and weaknesses of the new regulatory frameworks that have been introduced since the outbreak of the financial crisis. The inquiry will seek to identify any overlaps, contradictions, inconsistencies and gaps in the regulatory landscape. It will also focus particularly on the implications of the regulatory agenda for the United Kingdom, and the extent to which its interests have been impinged upon or enhanced. The sub-committee began its evidence programme on
I want to bring to the attention of the noble Lord, Lord Wallace, something that has come up not only during the discussion with Sharon Bowles on Tuesday but also today. One question we asked of Sharon Bowles was what relationships we have with the pivotal euro group—the 18 member states that are members of the euro and meet together to discuss matters that are relevant to the euro in particular. It has been the hallmark of my committee that we have asked each Economic Secretary and Financial Secretary whether they engage with the euro group and we have been told repeatedly, “No, other than that we meet them in the corridor”. The reason why I bring that up is that Sharon Bowles gave evidence to the effect that the United Kingdom was offered a place to attend in a privileged position in the euro group, which was of course at one time the backyard of the incoming Commission President, Jean-Claude Juncker. I seek to find whether that is the case.
When I attended a session this morning in the City, I was told that not only had this been done historically but it was offered to our own Chancellor of the Exchequer to be able to sit in—or for his representative to sit in—with the other 18 members of the euro group. Is that true, and is there evidence that we have had that offer and declined that offer? If it is the case that the United Kingdom, especially given its expertise in financial and regulatory matters, has spurned the opportunity to sit there next to the 18 members of the euro group as they construct and deal with the development of the regulatory framework, that would be such a huge dereliction of duty that I thought it appropriate to bring it to the attention of the House in this afternoon’s debate. We need that clarified, and I hope that the noble Lord, Lord Wallace, will pursue the matter and give us an answer that satisfies our repeated call for us to stay outside the euro—as we will for some time—but, for the purposes of the financial and economic structures being built in Europe now, to remain close and interested and integrated into that process for the benefit of the United Kingdom and the broader Europe.