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European Union Act 2011 (Amendment) (No. 2)

Volume 534: debated on Tuesday 25 October 2011

Motion for leave to bring in a Bill (Standing Order No. 23)

I beg to move,

That leave be given to bring in a Bill to apply the terms of the European Union Act 2011 such as to require approval by Act of Parliament and by referendum of provisions for the creation of a fiscal union or economic governance amongst those Member States of the European Union which comprise the Eurozone; and for connected purposes.

After last night, I hope that the Government will now at least agree to have a referendum on the proposed eurozone fiscal union and that the Prime Minister will set out an agenda for renegotiation of all the treaties. As I have made clear in my pamphlet, “It’s the EU, Stupid”, it is time for the coalition to wake up to the dangers that come from advocating full fiscal union and its imminent threat to the UK’s national interest. Indeed, the front of the pamphlet has a cartoon showing a compression chamber in the European Union and the necessity of having the safety valve of a referendum at Westminster.

We are now faced with a two-tier Europe, which I wrote about in the 1990s, with a dominant Germany, fiscal union and a hard-core economic federation with which we have a massive trade deficit—minus £38 billion last year in the eurozone alone—with no serious attempt to deregulate burdens on business and a massive European financial crisis. I am told that The Daily Telegraph will tomorrow reveal the full exchange between the Prime Minister and Nicolas Sarkozy and how the Prime Minister’s attempt to protect us in relation to the single market was rebuffed. I am not surprised. Indeed, serious rows are going on between France and Germany and between France and ourselves, which merely demonstrates the depth of the crisis.

The Government believe that it is in the interests of the eurozone, the EU itself and the United Kingdom to promote the idea of fiscal union and economic governance of the eurozone, led by Germany and France. That is a dangerous gamble, the balance of judgement for which must be thrown against the project, certainly for the UK, just as the opt-outs for Maastricht did not prevent the creation of a European Government, which has failed, with damaging consequences for the United Kingdom. Indeed, the Prime Minister yesterday conceded that we should have had a referendum on Maastricht, as I argued when I set up the Maastricht referendum campaign all those years ago.

There are a number of reasons why fiscal union will not work for either the eurozone or the United Kingdom. The Chancellor’s claim that there is a “remorseless logic” towards it avoids the fact that it is the deep-rooted cause of the structure of the treaties and the attempt to create unity out of diversity, with over-regulation and employment laws, that actively prevent growth and, therefore, prosperity and employment in the EU and the UK. There is no evidence of growth in the eurozone, except in Germany, and it is insisting on conditions that would have to be complied with, but given the state of the other European countries, the evidence suggests that that will not succeed.

The sovereign debt of many eurozone member states, including the original PIGS—Portugal, Italy, Greece and Spain—is evidence enough. They have no prospect of retrieving the situation without growth, but that will come only with, among other things, the repeal of social and employment laws, redundancy laws and other impediments to increasing the prosperity of small and medium-sized businesses, which need the oxygen and space to grow. We also must have structural renegotiation.

There is a certainty that the eurozone will not be a trading entity, and therefore our own stability will not be enhanced by its fiscal union and economic governance. There will be further debt crises, followed by the need for further monumental bail-outs, but there will be no money to pay for them, Germany’s conditions will not be met and there will be a dangerous and chaotic fiscal union within the eurozone. It would be better to recognise that immediately. When the implosion comes, there may even be a greater probability of the rise of the far right or the far left, because the electorates of Germany and other contributors will simply not put up with the burdens they would be expected to carry under such a debt transfer union.

As far as the UK is concerned, the solidarity in relation to the single market within the eurozone would lead to eurozone countries that are part of the fiscal union voting together against us. Professor Roland Vaubel of Mannheim university indicated in his article on raising rivals’ costs and regulatory collusion that that would do immense damage to our ability to compete, and the single market would be in disarray.

Apart from that, the United Kingdom’s trade deficit with the rest of the European Union increased by £40 billion in the last year alone, and would be even worse with fiscal union in the eurozone. Our trade deficit with the eurozone increased by £34 billion last year. The eurozone’s zero growth undermines our growth and, according to the British Chambers of Commerce, EU regulations cost us no less than £8 billion a year. The whole project has failed, and must be structurally and fundamentally renegotiated. Acquiescence in this has left us compromised. The coalition’s advocacy of fiscal union is a grave misjudgement. Indeed, fiscal union within the eurozone would mean solidarity between those 17 member states, and we would be outvoted by 213 votes to 132.

In a seminal article on the failure of the euro, Martin Wolf of the Financial Times said on Wednesday 19 October that fiscal union is not the answer, and that

“if creditworthy members were to transfer resources to the uncreditworthy on a large enough scale, the eurozone might be kept together. But, even if such a policy could be sustained (which is unlikely), it would turn southern Europe into a greater Mezzogiorno. That would be a calamitous outcome of European monetary integration”—

and of course Germany would not bail out everybody anyway. Agreeing to, let alone promoting, fiscal union is short-termism at its worst. Acquiescing in the determination of France and Germany, with whom our relations are increasingly difficult, to maintain the political will of the union, will lead to the predominance of Germany, which in turn will be faced with monumental difficulties in its hopeless struggle to maintain an unworkable eurozone.

Germany benefits enormously from the European Union for one reason: its investment in other countries. In the past 10 years, German unit labour costs have gone up by only 2%, but the average of those costs for all the other member states put together have increased by no less than 25%. Furthermore, the justification for the coalition Government is said to be the reduction of the deficit. That will not be reduced without growth when 50% of our trading is with a moribund Europe, and bearing in mind the trade deficit that we carry with the rest of Europe.

We are at a critical crossroads, and the Government are taking the wrong turn by endorsing fiscal union and creating two Europes without renegotiating the treaties. We need an association of nation states, led by our Prime Minister in his negotiations at the summit to come. Allowing eurozone member states to go ahead towards fiscal union will create two Europes, to which we would remain bound by treaty and law, although both would be built on sand. It would have profound economic, political and constitutional consequences for UK vital interests, fundamentally changing the UK’s relationship with the whole of the European Union, not only our relationship with the eurozone. We must have a referendum in the light of such a profound change in our political relationship with Europe. Indeed, the Prime Minister said yesterday that we must have fundamental reform, and I believe that that requires a referendum.

The proposals for European economic government require a referendum. Against that background, which involves a fundamental change in the United Kingdom’s relationship with the European Union, and the creation of a critical mass of a fiscal union, it is impossible to conceive that there will be anything other than irretrievable damage to the United Kingdom. We have had riots, protests, crisis in the PIGS countries, the failed Lisbon agenda, over-regulation, low growth, and the breaking of rules—and fiscal union will not prevent further monumental bail-outs. The bottom line is that that does not work. There will be political upheaval in other countries in the eurozone, and all this can be avoided as we speak.

On the single market, the Deputy Prime Minister has specifically ruled out any repatriation of powers, and the Liberal Democrats effectively have a stranglehold over any change in the European treaties. That is what largely lies at the root of what happened last night. We need only look at the impossible trade balance that I have described, which is massively destroying British businesses and British jobs. When I asked the Prime Minister in the Liaison Committee if there would be a treaty to underpin the new arrangements, he said that there would not be a treaty as far as he was aware. In fact, of course, we now know that there will be.

So where did things go wrong? The European Union Act got it badly wrong, because section 4 says that there will not be a referendum where there is a eurozone-only exercise of competence. The fact is that we must have a referendum for all the reasons that I have given.

My speech last night consisted of six words. I may take a little more time today, although I will try not to take the full 10 minutes, and it is certainly not my intention to divide the House.

I rise in opposition to this Bill, and in wonderment and admiration for the extraordinary chutzpah of the hon. Member for Stone (Mr Cash) in introducing it; I mean that in a flattering sense. He regularly lectures the House on his objections to anyone from Europe in any way commenting on, or having a view on any aspect of, British affairs, yet the Bill says that there should be a referendum in this country if the members of the eurozone decide to move forward to an agreement on economic governance or on fiscal union. I think they will consider that to be a wonderful example of English irony—the notion that we should have a referendum to tell them whether they might move to a stronger or alternative system of governance. It is about time that we stopped lecturing the rest of Europe on what to do and got our own house in order. This country, with zero growth, rising unemployment, the highest inflation in Europe and a rising public debt and deficit, is in no position to tell any other European country what to do. We are part of the Euro-problem and we have to contribute to being part of the Euro-solution—and this Bill certainly does not so do.

That said, I share the hon. Gentleman’s expressions of concern, which I raised earlier in questions, about the Chancellor of the Exchequer’s remarkable insouciance—I think it is shared by the Prime Minister—in saying that there should be fiscal union and a single economic governance for about 75% of the EU economy. Throughout British history, we have opposed the notion of any single dominant European power, whether it is a religious power, a single state, an ideology such as fascism or communism, or one single trading or commercial model. We have liked Europe to move in different ways at different speeds so that Britain can find the interstices in which to make a profit and gain political support. But now we have our Chancellor of the Exchequer, and a Conservative Eurosceptic at that, calling for the creation of a European hegemon. The minds of all our historians and previous statesmen would boggle at that proposition. To that extent, I am with the hon. Member for Stone, because he brings these arguments to bear.

Right now, the Chancellor of the Exchequer is going in front of the European Court of Justice to insist on the French proposition that all eurozone bond trading should take place within the eurozone itself. That is a protectionist smash-and-grab raid on a huge chunk of the money that the City makes, and makes more efficiently and effectively than any other financial centre. So our Eurosceptic Chancellor is praying in aid the European Court of Justice against a proposition which, if carried through, could do serious damage to the UK.

Fiscal union conjures up the concept of a single unitary Europe. The United States is a fiscal union. California is bankrupt, but it does not stop using the dollar. New York was bankrupt in the 1970s and did not stop using the dollar. American states have different taxes, different industrial, employment and labour laws, and different investment policies. The use of a common currency is not the same as common policy. We certainly need stricter rules, and I think we all accept that.

Equally, we have to say to our German friends—we should be in this discussion—that not every European country can run a balance of trade surplus. It is economically illiterate to proclaim that. The European Union is a transfer union. We have been transferring wealth to Germany for the past 50 or 60 years. If we all stopped buying Mercedes and BMWs and bought Kias or cars made in India, the Germans would be the first to complain. We have to say gently to our German friends and other creditor nations such as China, which make a fortune from European consumption, “You have to be part of the solution as well.”

We also have to say to the European Central Bank, “Stop fighting the wars of yesteryear.” It is locked in a permanent struggle, like Moriarty against Sherlock Holmes at Reichenbach or Voldemort against Harry Potter, to curb inflation at all costs. Right now, we need more demand in our economy and we are not getting it from the ECB.

I am happy to support stronger economic governance. It allows variable tax-and-spend policies. One can spend a lot and tax a lot, provided that one remains in equilibrium. Our Nordic friends, on the whole, have maintained that policy. This does not mean a single tax rate or a single public expenditure rate. Those are still matters for sovereign Parliaments, even in a system of fiscal union and economic governance.

We ought to understand that it is the purpose of the European Union not to construct a fiscal union heaven, but to protect us—including this country—from the disintegrating hell of a Latin Americanised Europe, where every country maintains its currency against every other currency and its trade policy against every other trade policy. If we revert to 27 competing currencies, let us not imagine for one second that the single market will be maintained.

I would prefer it if it was our Prime Minister, Chancellor or Foreign Secretary making these points, rather than a humble and irrelevant Back Bencher like me. It is vital that Britain connects and engages again. I do not want to enter into curious political alliances with failed parties in Poland, Latvia or the Czech Republic, like at the Council of Europe, which we will debate again on Thursday, where our Conservative colleagues sit with the Kremlin-appointed Putin nominees, rather than work with likeminded centre-right parties. We have a serious political problem in our entire approach to Europe.

The Prime Minister, I presume, will make a report after the summit meeting tomorrow. On Thursday, we will be back to discussing the Council of Europe and the European Court of Human Rights. He will have a little break at the Commonwealth Heads of Government conference. I would like him to persuade most of our Commonwealth allies and partners, who have far more protectionist policies against British exports of goods and services than any European country, that they should be opening their markets. He will then return to the kinds of scenes that we saw yesterday.

I am sorry, Mr Speaker, if these few remarks in opposition to the Bill have been a little longer than my speech last night. I promise that the next time we discuss Europe, I shall try to be silent or to speak in fewer words than I used last night.

Question put and agreed to.


That Mr William Cash, Mr Bernard Jenkin, Mr John Whittingdale, Mr John Redwood, Geoffrey Clifton-Brown, Mr Greg Knight, Mr Graham Stuart, Mr Richard Shepherd, Jacob Rees-Mogg, Chris Heaton-Harris, Zac Goldsmith and Mr Peter Bone present the Bill.

Mr William Cash accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 20 January 2012, and to be printed (Bill 239).