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Euro Area

Volume 598: debated on Tuesday 21 July 2015

I beg to move,

That this House has considered the UK’s relations with the Euro area and further Euro integration.

I am grateful to have secured this debate, because it is time that our Parliament discussed the big moves under way on the continent of Europe, which take the form of a major policy statement by the five presidents of the European Union on how they wish to make rapid progress to a more comprehensive union, including a political union. The document is a well-kept secret. It has been on the European Union website since the end of June. I have raised it a couple of times in the House and in interviews, but for some reason the British media do not seem to have realised that there is this radical prospectus, which is now official European Union policy, written and endorsed by the five presidents.

Some people in the United Kingdom will not have quite caught up with the idea that there are five presidents, but they are: the president of the European Council, who is the senior minister representing the member states’ ministerial teams; the president of the European Parliament, who represents the elected MEPs; the probably better known President of the Commission, who is Mr Juncker for the time being; the president of the European Central Bank, Mario Draghi, who is a bit better known thanks to the comings and goings over the Greek banking system and the Greek state debt problem; and the president of the Eurogroup, who is a little better known on British television screens because he has from time to time had to do the crisis response when we have had another difficult day in the relationships between Greece and the rest of the eurozone.

Those five very powerful men represent all the branches of the European Union. It is tempting to think that only three of the five presidents apply to the United Kingdom, because the UK, by common consent across the parties, is not a member of the euro and is therefore in a more independent position than EU member states that are members of the eurozone. The United Kingdom is a very small shareholder in the European Central Bank and has a non-paid-up, rather bigger shareholding ominously sitting there. Clearly the United Kingdom does not attend the Eurogroup meetings—it is right that we do not—but we have seen in the case of Greece that the Eurogroup cannot always deal with its financial problems. The European group of Ministers wished the UK to give consent to an emergency loan to Greece from outside the Eurogroup.

The problems that have emerged with Greece give the United Kingdom an important warning, as well as a sign that this period of change in the European Union gives us an opportunity. I hope our Prime Minister will utilise it to the full, both for the benefit of a happier United Kingdom in its relationships with the rest of the European Union and for the sake of the Eurogroup, which has its own need to drive further towards common financing and common decision making.

My first wish is that Her Majesty’s Government not be taken on a wild ride to political union. Some people in the proto-debate on what our relationship with the European Union should be seem to claim that staying in the European Union as it is currently constituted is a tolerable status quo that we need not worry about, because we know what it is like. However, there is nothing stable about it and no status quo. This is a wild ride to political union. The euro has been living through an intense and tragic crisis, which has highlighted to the custodians of the euro the need to go much further and faster in the direction of completing the creation of a comprehensive union that will look much like a federal state.

I congratulate my right hon. Friend on securing this wonderful debate. His speech highlights to me and many others just what a disaster the eurozone is. On that issue and the plight of Greece, does he agree that the more the disaster unfurls, the more the eurozone tries to patch things together? Now, we have news of a eurozone parliament. That is exactly the sort of thing that my right hon. Friend is warning about.

Indeed. After I secured the debate, no less a figure than the President of the French Republic made an important speech saying that the recommendations of the five presidents of the European Union do not go far enough. I thought theirs was a blockbuster recipe for pretty comprehensive union, but the President of France has said that he would like them to go further and faster. He would like to supplant the current European Parliament, or put alongside it a euro area parliament, to provide some democratic accountability to the increasingly large and important decisions that the Eurogroup makes.

Will my right hon. Friend also note that, according to the press release I have here, President Hollande said that the eurozone needed a specific budget as well as its own government and parliament? In other words, they are going for political union or bust in the eurozone.

My hon. Friend is exactly right. The President of France has gone even further than the five presidents. I will briefly highlight what is in the rather lengthy and important report, because it has escaped most comment and attention in the United Kingdom. The five presidents say:

“For all economies to be permanently better off inside the euro area, they also need to be able to share the impact of shocks through risk-sharing within the EMU. In the short term, this risk-sharing can be achieved through integrated financial and capital markets”.

That is pretty comprehensive union, which they call “private risk-sharing”. Those markets would be

“combined with the necessary common backstops, i.e. a last-resort financial safety net”—

presumably that is public finance. They continue:

“In the medium term, as economic structures converge…public risk-sharing should be enhanced through a mechanism of fiscal stabilisation for the euro area as a whole.”

That is rather wordy and slightly opaque, but I think the meaning is clear. The five presidents have recognised that to have a successful single currency, taxpayer money needs to be standing behind the financial institutions—the banks and others—and the states involved in that financial union. That is exactly the issue that the tragedy of Greece has highlighted.

Euro banknotes have no symbols of French or German taxpayers in the way that our banknotes have the Queen as a representation of the full power of the sovereign in Parliament and the revenues going into the Treasury. Euro banknotes do not have that, for the good reason that the symbols could not be agreed and there was a bit of reluctance to put the full power of taxpayers behind the banknote. They have a misleading symbol on them: the European Union flag. One has to ask why that is, when the United Kingdom—the largest country in the “outs”—has made clear that we have no wish to put any taxpayer money or finance behind the euro, because it is not our project and we are not part of it. That illustrates a much bigger problem that the eurozone is grappling with: who stands behind its banks? Who stands behind the member states when they get into financial difficulties? That problem has come out in the Greek struggle.

The five presidents go on to say:

“Progress must happen on four fronts: first, towards a genuine Economic Union…Second, towards a Financial Union that guarantees the integrity of our currency across the Monetary Union and increases risk-sharing…This means completing the Banking Union and accelerating the Capital Markets Union. Third, towards a Fiscal Union that delivers both fiscal sustainability and fiscal stabilisation”—

that means sharing tax revenues, basically—and

“finally, towards a Political Union that provides the foundation for all of the above through genuine democratic accountability”.

They go on to say that there will have to be a lot more common decision making or shared sovereignty, although I would call that the gift of sovereignty to a higher body. They say that

“this would require Member States to accept increasingly joint decision-making on elements of their respective national budgets and economic policies. Upon completion of a successful process of economic convergence and financial integration, this would pave the way for some degree of public risk sharing”—

that is, countries using other people’s taxes to sort out their own problems—

“which would at the same time have to be accompanied by stronger democratic participation”.

My right hon. Friend is making some incredibly important points. Would what he just quoted not be more accurately described as the “United States of Europe”?

I hope that it would be the United States of Euroland, but my hon. Friend is right. I hope that the Minister will say that we will not be part of it and that a plan exists to negotiate a new relationship for the United Kingdom. We will clearly need such a relationship, because no party in this House wants the UK to risk-share on that basis, putting in British taxpayer money to help Greece, Portugal or whoever is in trouble due to the euro.

The five presidents want a euro area system of competitiveness authorities that will try and create commonality of policy and outturn across the Union. They claim to have largely achieved the goal of bank supervision with the setting up of the single supervisory mechanism, but the single resolution mechanism is not fully implemented, and they want to complete a financial union, launching a common deposit insurance scheme and a full capital markets union. They want to get on with those immediately and not await treaty change, which they will need for some of their other proposals.

The five presidents ultimately want a single European capital markets supervisor, which would have great implications for the City of London and the conduct of our markets and our regulatory system were we to take part. They say that

“regulation creates incentives to risk-pooling and risk-sharing and ensures that all financial institutions have sufficient risk management structures in place and remain prudentially sound.”

Even more importantly, they go on to say, referring to the capital markets union:

“Taxation can also play an important role in terms of providing a neutral treatment for different but comparable activities and investments across jurisdictions.”

Will the United Kingdom be able to opt out of this capital markets union? If we sign up to it, does that mean that we would have to accept common European taxation on this rather important business interest for the UK?

Last, but by no means least, the report contains a heading referring to a euro-area treasury, under which it states:

“The Stability and Growth Pact remains the anchor for fiscal stability and confidence in the respect of our fiscal rules. In addition, a genuine Fiscal Union will require more joint decision-making on fiscal policy”—

in other words, a euro-area treasury.

My right hon. Friend knows this, but there is benefit in getting it on the record. The Germans and the French broke the stability and growth pact three years in succession with impunity when it suited them. On the question of how far our Government would go in accepting the proposals, does he agree that the creation of a eurozone is only a de facto organisation and not a legal one? We are caught up in this. When the fiscal compact was proposed, our Prime Minister, having listened to us, decided that he would veto. Would we not want him to veto all this as well and to make it clear that that is the case now?

My hon. Friend is right to draw attention to the legal complexities that the euro area and the EU face. He is right that there is no formal, treaty-backed legal entity of the euro in full. There is the relatively informal euro-group of Ministers, who meet monthly just before the full economic affairs council, to settle euro business.

The process has gone a bit further, because of course there is a separate legal entity called the European stability mechanism, which is a formal entity for bailing out or offering loans to euro states in need of additional money. It is currently the object of the entreaties of the Greek state as the Hellenic Republic seeks a long-term loan to replace the short-term loan that the European financial stabilisation mechanism has just provided to see it through July. Greece is currently in negotiation over €86 billion—Germany would like it to be less—of possible money from the ESM. There is a legal structure to do some of the financing but, as my hon. Friend rightly says, they probably need treaty modification and a firm legal basis for the euro. In recognition of that, the five presidents suggest that they may need to move towards having an elected-President of the eurozone, which I imagine would have full legal authority and would therefore give personality to the zone as a legal entity and which would make things easier from their point of view.

I am conscious that several colleagues have turned up to join in this debate and, with your permission Sir David, I would like to see whether they can be accommodated, so I will move rapidly on to my questions to the Minister. It seems that much of what the five presidents want is perfectly reasonable in the context of people who have set up a currency that does not yet have a country to love it or back it. They desperately need to make a lot of progress to create a political union, to create a flow of tax revenues and to provide the financial solidity that a main currency usually has, so I can see their agenda. We have already heard the French President say this week, “Let’s go further and faster”, so we know the direction of travel.

Will my hon. Friend reassure us that the UK could not conceivably travel that route? Having made the crucial decision not to join the euro, the British people and Parliament are not going to want to go down the route of political union. Will he also say where the British Government will now stand on the challenge or opportunity of full banking and capital markets union? There would be great hazards in the UK signing up to the full banking and capital markets union, because that would, by implication, drag us into the financing of the euro area and involve us in decisions that it would properly want to make for itself, as we are not a full member. I would be grateful to hear the latest Government thinking on how we can have our own independent markets but co-operate with and work alongside the euro area as it creates its capital markets union.

It seems to me that there will definitely have to be treaty change. The five presidents are suggesting that they can get by without treaty change until 2017, after which they will need it. From the UK’s point of view, that is an inconvenient date, because we would like treaty change as a result of our renegotiations. As the gap between the likely date of our referendum and the date for the euro area considering treaty changes is quite narrow, might one part of our renegotiation be to say to our partners in Europe, “As you need treaty changes quite soon and we would like them now, let’s bring the thing together”? Is it not the case that the treaty changes we need relate not only to the fact that the EU already has more power then we would like over aspects of our lives, but to the fact that it is about to take a lot more power to consolidate the euro? That is a step that we could not conceivably take.

The detailed issues under all that relate to who is responsible for recapitalising failing banks—for example, who is going to recapitalise the Greek banks? Are we fully insulated from all that? Are we now happy that the formulation from the European financial stabilisation mechanism is watertight so that there is no recourse to British taxpayers in the temporary loan to Greece? Can we ensure that all future bailout loans and other advances to euro states come entirely from euro funding and not from EU legal structures, which have added complications? Can we urge the euro area to ensure that it completes its banking arrangements as quickly as possible? It would be much to the convenience of not merely the Greeks but everyone else who needs to deal with Greece that its banks do not shut down for several weeks and can reopen, as they have done partially today, with a full service, so that they can be a proper part of the European market and the world economy.

This is a great opportunity for the UK from which the Prime Minister should take heart. I admire the honesty of the five presidents coming out with all this now, despite the Greek crisis and the knowledge that the UK wishes to negotiate a new relationship. I think it makes things much easier for us, and we should share that fact with the British public, which is what I am trying to do in my modest way today. We must say that there is a big plot afoot—a wild ride to political union that is not something to which the UK can sign up. We should not get in their way, but the price of our happy consent to their new arrangements must be a new set of arrangements for us to get back powers that insulate us from all this. We need to try to find a way to work alongside the euro without being part of it.

Order. The wind-ups will start at 10 past five. I want to call everyone who wants to speak, so I hope that colleagues will bear that in mind.

It is a great pleasure to serve under your chairmanship, Sir David. Perhaps I should put on the record the fact that this morning I was re-elected as Chairman of the European Scrutiny Committee.

In a nutshell, everything that my right hon. Friend the Member for Wokingham (John Redwood) said is completely true. The current situation represents both a massive challenge and an opportunity for the Government. On a number of occasions, when the Prime Minister has been confronted with such difficult, challenging questions, he has decided to do the right thing. This debate, however, demonstrates that there is another new opportunity because of the disarray in the European Union.

The question of the relationship between the eurozone and the rest of the EU provides us with an opportunity, in particular given what President Hollande has said about wanting a eurozone budget, Government and Parliament, as I said in my intervention. That is completely inconceivable for the United Kingdom, the Government and our Parliament. We would be driven inexorably into all the nooks and crannies of those arrangements, because we are bound to be affected by them, as we already have been in the crisis that has engulfed Europe for the past five or six years and that I believe has been apparent since the Maastricht treaty in 1990.

The question of what President Hollande said a few days ago is important. In my judgment, what is significant is that he has a real problem with Germany—I will come on to Germany—because the question for France is one of sovereignty and the question for Germany is one of sharing the risk. That will present a significant problem between France and Germany, which is why Angela Merkel and President Hollande clearly had severe differences of opinion. This is a moment when it is imperative for the British Government to make their position clear. With France and Germany at loggerheads over the question of sovereignty and sharing economic risk, we have a classic Waterloo moment, when we should simply go straight through with our cavalry and say through the Financial Secretary to the Treasury and the Prime Minister what we will not have, that we want clarity and that this is not the time for fudge. This is the time for decisive action and to make it clear what we cannot possibly accept.

Other matters to be looked at include the purposes that lie behind what Wolfgang Schäuble has been edging and pushing, nudging and driving, during the Greek crisis. My right hon. Friend the Member for Wokingham and I each wrote essays in a recent book called “Visions of Europe II”, following on from “Visions of Europe”, which came out in 1993 and in which I quoted myself. I said, I hope not immodestly, that

“the answer to the German question lies primarily in Germany itself”,

but to

“hand her the key to the legal structure of Europe with a majority voting system gravitating around alliances dependent on Germany simply hands to”

Germany

“legitimate power on a plate.”

We can say that that is exactly what has happened since I wrote those words in 1990.

Furthermore, because I wanted to be positive, I wrote:

“Britain wants to work together with Germany in a fair and balanced relationship, based on free trade, co-operation and democratic principles. She does not want to be forced into a legal structure dominated by Germany. Plans for a united Europe stray into the darkest political territory, and must be firmly rejected.”

That was in 1990, and here we are now.

I added that

“if Germany needs to be contained, the Germans must do it themselves…now is the time for the Germans to prove themselves”—

I am afraid that they have. Given the treatment of Greece, irrespective of whether there was culpability on the part of the Greeks, the really big landscape—the manner in which the whole European project has been driven forward since Maastricht—the really big landscape—the manner in which the whole European project has been driven forward since Maastricht—is that the Germans are now in control of the eurozone. No one doubts that. I have a whole stack of cuttings here, from Germany, including from Bild, and from French newspapers. I do not have time to go through them all, but every single newspaper throughout the whole of Europe—rather curiously, there was a fairly muted response from the British press—has made the assumption that it is now effectively a German eurozone, if not a German Europe.

It is not in our interests to allow that, or to allow ourselves to be affected by this situation. We will be driven into the second tier of a two-tier Europe. The eurozone is part of the over-arching legal framework of the EU as a whole, of which we are a part. That is what is driving us towards the exit of the European Union.

I wonder, Sir David, whether, if my hon. Friend agrees, it might be helpful to know how many colleagues would like to speak, so they can all have a fair amount of time.

On that point, I will sit down so that others can have their shot. I simply wanted to get that point about Germany across.

I pay particular tribute to my right hon. Friend the Member for Wokingham (John Redwood) for bringing this issue into the public arena. The words of the five presidents need to get out there.

The euro needs to work. It exists much as I foresaw, many years ago. In ’99, when the first 11 got together to have it as their currency—the number has expanded to 18—I foresaw the problems that would arise. On the Floor of the House this morning we heard that we have an adverse balance of payments situation, not least because sterling is strengthening thanks to difficulties in the eurozone. The situation may provide the impetus we now need even more to look rather further afield to our friends and the growing markets outside the EU, which are untainted by the euroland crisis and are more linked to the dollar world.

Some years ago, an insurance company had the strapline, “We never make a drama out of a crisis.” It seems to me that whenever there is a crisis, in the EU generally and in euroland in particular, there is an attempt to make an opportunity out of it. However, it is not used as an opportunity to argue for what we would say is sensible—that perhaps the EU ought to do less; the argument is always that the EU wants more. I suppose that is the new logic. If there is a single currency, then given the pressures and strains of such divergent economies, the logic will be what the five presidents have come up with: there has to be more of the same, and words like “divergence”, “difference”, “independence” and “democracy” have no place in that.

My right hon. Friend mentioned that there are five presidents across the EU. Dombrovskis is the Vice-President for the Euro and Social Dialogue—I must say I had not heard of him before—and his words encapsulate what the situation is moving towards:

“The Economic and Monetary Union has been strengthened in recent years, not least in the light of the financial and economic crisis. Yet it remains incomplete.”

These people want more. They want a competitiveness authority so that there are common wage agreements across borders and a European deposit insurance scheme. Then they claim that Europe needs strengthened democratic accountability. I truly wonder how the people of Greece can reconcile the idea of strengthened democratic accountability with what they have just gone through.

My right hon. Friend the Member for Wokingham made the point that we should not get in the way, because things are going down a path that he rightly identified as the correct one under the circumstances. Perhaps I am being naive, but should we not be screaming from the rooftops, “Stop,” for all the reasons my hon. Friend the Member for South Thanet (Craig Mackinlay) has just mentioned—should we not tell them to get out of this experiment before millions more suffer?

My hon. Friend makes a good point. Unemployment in many parts of euroland is now beyond any measure we have seen in respectable parts of the western world since the crises of the 1930s. For Greece, sadly, that unemployment is perhaps here to stay for a generation, if not more.

I mention Greece, but the people who need to ask themselves where they are going—perhaps they have not yet read the five presidents’ document—are of course the people of Germany. The recipe that the presidents propose is one of massive fiscal transfers guaranteed by the German taxpayer. Such transfers may work in the United States, and the people of Texas may be happy to support their colleagues, friends and family in Dakota, but I wonder whether that really holds true between Germany and Greece, which describes its supposed friends and colleagues in Germany in terms that I have not heard for a very long time.

I again pay tribute to my right hon. Friend the Member for Wokingham, but we need to recognise that what the presidents propose beyond 2017 requires a grand treaty change for the eurozone. If that is for them, fine, but it is certainly not for Britain. We have an opportunity to wrap together what we require, which is a proper treaty change to get a relationship that is in tune with the British people—a return to the free trade and friendship that we thought the EU was all about. Perhaps 2017 can be an excellent year for those who feel as many of my Conservative colleagues do, and they are in tune with many people outside this place and across the country.

I ask the Minister to consider that in the round. A crunch time has come, and it is obvious what our European colleagues want. They have not asked their people, and they dare not ask their people, but it is clear that this is becoming a Euro-state that is not right for Britain. I am in favour of a new relationship that I hope can be found for the good of Europe and for the good of Britain.

It sometimes feels like we need a new language in which to have this conversation about the European Union and our relationship with it. I am grateful that, over the course of his career, my right hon. Friend the Prime Minister has on many occasions given us that language by saying things such as:

“It is the last gasp of an outdated ideology…that has no place in our new world of freedom”.

I agree with him.

A new nation state is hoving into view, and people should be clear about what we are discussing. The question is: should we continue on the path into that new nation state? There can now be no doubt that that is the trajectory of the eurozone. Advocates of European Union membership on substantially the current basis are in danger of being blindsided. We can see from this debate’s attendance that people are not paying close attention to the important issue of what the five Euro-presidents have said. By the way, the “five Euro-presidents”—the ridiculousness of it is palpable.

The five Euro-presidents have set out a new nation state, and it is clear that those who advocate membership on a substantially unreformed basis have not kept up with events. Too often it seems that people complacently assume that there will be a yes vote and that things will go on as before in a kind of status quo, but there will be no status quo on the ballot paper when the referendum comes. The choice will be either to continue on a substantially unreformed basis, if the Prime Minister does not get what he wants, or to say no and continue on a fundamentally different basis. Of course, I hope that the Prime Minister succeeds in delivering everything that he has ever set out. When the day comes, I would like to see yes meaning a fundamentally different relationship with the European Union that we and the Prime Minister can wholeheartedly support, and I would like no to turn out to be something that we do not need to consider.

The five Euro-presidents have set out a path to a new European nation. I fear that the truth is that they will not be willing to allow us to move to a fundamentally different path and that, in due course, the choice will be either the wild ride to political union that my right hon. Friend the Member for Wokingham (John Redwood) set out or the conservative, moderate choice of sticking with our Parliament, our British courts, our British Lords and our ability to govern ourselves in the way that seems fit to us and that is accountable to the British people.

I am grateful to my hon. Friend, and to my right hon. and hon. Friends who spoke earlier, for their efforts in delving so deeply into the questions without completely losing the will to live, but can he explain to me how, despite all their sufferings, the Greek people seem to regard membership of the euro as the addict regards the use of heroin? It does them enormous harm, yet they do not seem to be able to give it up.

My right hon. Friend makes a good point, and it may be that through the euro system Greece has done rather well in the past, through the fact that money was very easy for Greece—probably much easier than it should have been—and a nation that had probably been quite parsimonious was encouraged to take advantage of cheap credit and get into bad debt problems. It may well be that that system encouraged Greece to believe that a new way of living beyond one’s needs was possible; but as good Conservatives we will recognise that one must live within one’s means and balance the books. One must have low taxes, small government and sound money. However, I do not want to divert my remarks too far down that path.

I want to pick up on something that my hon. Friend the Member for Stone (Sir William Cash) said about Germany. It has been an interesting journey, considering how people reflect on Germany. I am inclined to think that German commitment to the EU project is not malicious or controlling. It is not a problem, except that, perhaps because the EU is perceived as an anti-war project, the German people and their leaders have pursued the project far beyond what was reasonable, just and right, out of a sense of war guilt and a historical sense of shame. We as good individualists, in rejecting collectivism, may have to look at today’s generation of German people and say that they are not responsible for the horrors of the past. They must forgive themselves and move beyond the corrupting view that they have the responsibility to take forward, in a way that is quite dangerous, a project that can now be seen to have failed. History may not repeat itself, but it sometimes rhymes. We have had a horrible financial crisis.

My hon. Friend made a funny remark about the apparent absurdity of the five presidents, but does he agree that they are not figures in a Gilbert and Sullivan opera, but are enormously powerful figures commanding billions and influencing the lives of hundreds of millions of people across Europe? Just as they took the exchange rate mechanism well beyond the point at which it did untold damage, they could do untold damage with their euro scheme. Is not that a reason why we should try to let them get it right, rather than making it more difficult for them?

My right hon. Friend is right, and it is not for us to choose the destiny of the other peoples of Europe. We might offer them our advice in different ways, but since they now have the euro as a currency they had better make the best of it—although, again, I do not want to be drawn too far off into ideas about money and banking. We are in a fix. I agree with my right hon. Friend that since those people are extremely powerful, they had better make the best of it, and we should not get in their way.

I was saying that history, while not repeating itself, sometimes rhymes. We had an enormous credit expansion, which broke the banks and led us into a position of desperation in several countries of Europe. We should not in such circumstances cast aside democracy and assemble a supranational state that is not accountable to its people. There we would be running the risk of a tragic rhyme in history—a cataclysmic mistake, possibly, should it go wrong—and it really might. The evidence of history is that it might.

I want to mention four things: we should undo what I would call the spell of Plato—the idea that a guardian class can look after us, free of democracy. We should get off the road to serfdom. We should make sure that we reject the omnipotence of government, and we should overturn this managerial revolution. I refer of course to books by Popper, Hayek, Mises and Burnham, all books written during the period of war in the first half of the 20th century. They are books that I would commend to anyone, lest, while not repeating history, we rhyme with the tragic events of the past.

The right hon. Member for Wokingham (John Redwood) has a track record on these issues. I might describe it as history, given that his first European rebellion occurred during my pre-school years. Indeed, the book mentioned by the hon. Member for Stone (Sir William Cash), “Visions of Europe”, was written almost before I was born, but I will be sure to read the sequel, the slightly unoriginally titled “Visions of Europe II”.

It is good to have the opportunity to explore the questions of the UK’s relations with the euro area and further euro integration. As Members know, the Scottish National party won the European elections in Scotland with a clear manifesto commitment not to seek to join the euro, and that remains the case. There was a time, I am told, when the SNP agreed with the then UK Government that a decision on future euro membership would be subject to democratic and economic tests: membership could happen only if it was right for our economy and the people voted for it. Clearly, times have changed.

I think it is important to give some context for the debate. At the weekend, the latest opinion survey by Panelbase was published. The poll of more than 1,000 people in Scotland and just under 1,000 outwith Scotland found that support for staying in the EU, along with eurozone and non-eurozone partners, is higher in Scotland than elsewhere in the UK: 66% of Scottish respondents supported continued EU membership, compared with 51% in England being in favour of British exit. Those numbers will please some right hon. and hon. Members, but they highlight the importance of having a double majority rule for the forthcoming EU referendum to ensure that Scotland, and other UK nations, cannot be ripped out of the EU against our will.

The EU is far from perfect, but we must recognise that some 330,000 people in Scotland are involved in jobs related to trade with the EU and the continuation of the single market. We value that economic link and will seek to protect it. As set out by Scotland’s First Minister, the SNP is focused on two areas of reform. The first is straightforward: the EU should focus on economic and social policies that make a tangible difference to the lives of its citizens. Member states should, for example, have more flexibility in areas such as public health. We should work to complete the digital single market and focus efforts on creating a more integrated and connected energy market. Getting those issues right will bring benefits across eurozone and non-eurozone member states.

The second focus for the SNP is regulatory reform. The SNP Government in Scotland have already demonstrated what that can mean with reforms to the common fisheries policy. The reforms involve changes to allow more decisions to be made at a regional rather than an EU level.

The hon. Gentleman is very helpful in allowing me to intervene, but I am not concerned about the things to come that he has mentioned. He must explain how Europe will head more in a euro direction over the next couple of years, just as my right hon. Friend the Member for Wokingham (John Redwood) discussed, rather than talk about where we are now.

Order. Before the hon. Gentleman responds to that intervention, I must remind him that he has only a minute and a half left.

Given the short time remaining, I will continue my speech.

I mentioned the possibility of British exit, but, of course, much of the strains in the eurozone today are centred on the possibility of Greek exit, as Members mentioned. As the Scottish Government have said, it has been, and remains, incumbent on all parties to work together to find an effective solution that allows the Greek economy and the Greek people the time and stability required to recover, and that also avoids unnecessary damage to the eurozone. As the IMF has acknowledged, some debt relief is an essential part of the recovery package. Ultimately, the key to recovery will be promoting growth to ensure an end to austerity.

During the Scottish independence referendum last year, much was made of the idea of solidarity. The SNP certainly supports the idea of solidarity within the EU and the eurozone. We also look for the eurozone states to work to promote stability and opportunities for growth, because a successful eurozone area is vital for our own economic opportunity and success. I am sure that we can all unite in supporting that outcome.

Thank you, Sir David, for your chairmanship. I congratulate the right hon. Member for Wokingham (John Redwood) on securing the debate. It is a particular pleasure to end the term by debating some of these issues with my old friends on the Government Benches.

The right hon. Member for Wokingham chose his usual neutral language to describe the report of the five presidents as a plot to take us on a wild ride to a European superstate. I want briefly to discuss the report and pose two questions, not so much directly to the Minister but for consideration in the debate. First, is what the report outlines a threat to the UK, and secondly, will the measures in it happen? Let me elaborate on both of those points for a couple of minutes.

Of course, it is timely to be discussing how the eurozone moves forward in the wake of what we have seen in Greece in recent weeks, but it is also instructive, as has been said, that throughout all the difficulties, and even in the wake of the referendum that was held a couple of weeks ago in Greece, a majority of people both on the yes side and on the no side wanted to stay in the euro and the eurozone. That was not a referendum about breaking with the European Union.

The discussion about how the eurozone moves forward and tries to resolve some of the difficulties—weaknesses, one might say—in its architecture that have been exposed by the crisis is not a plot. It is not surprising that this discussion is happening. Indeed, the Chancellor of the Exchequer himself has said time after time that members of the eurozone will inevitably come closer together in the wake of the crisis and what it has exposed. The report does set out major changes—I will not detail them all, because the right hon. Member for Wokingham set them out—such as convergence, mutualisation, risk sharing and so on, but it is not a plot, and the direction of travel it sets out for the eurozone is not surprising in the wake of the crisis. As I said, the question for us is whether it is a threat. Surely it is in our interests that the eurozone sorts itself out, eases the unemployment that Members have referred to, secures better economic growth and becomes a stronger trading partner for our exporters and businesses. In fact, whether we were inside or outside the European Union, it would be in our interests for the eurozone to resolve its economic difficulties.

I would love to give way to the hon. Gentleman, and I do not want to be discourteous to him, but I have only a couple of minutes, so I ask him to forgive me for not giving way to him today.

The right hon. Member for Wokingham and many others Members who have spoken in the debate have used language about seeing all this as a dastardly plot and a threat to the UK. I will not comment on each of the specific items in the five presidents report, but I argue that in a general sense, it is in our interests for the eurozone to sort itself out economically and become a stronger trading partner for the British economy. I do not see this as a zero-sum game in which a stronger eurozone is somehow a threat to the UK—not given that we have been a member of the EU for 40 years and it is our biggest trading partner, our biggest source of exports and the source of half our inward investment. However, continued economic weakness in the eurozone and a failure to resolve the problems that have been exposed in recent years would certainly not be in our interests. I therefore take a different view from the right hon. Gentleman.

The second point, which is related to whether the report represents a threat, is that although most of the report concentrates on the eurozone, some of the measures apply to all 28 member states. An example is the capital markets union, to which the right hon. Gentleman referred. That is being governed by Lord Hill, our own Commissioner and his party colleague. The UK is the member state with the strongest financial sector, and it has a world-class cluster of associated services such as accountancy, so that poses opportunities for the UK, not just challenges. We must not see everything that happens as a threat.

Let me move on to my second question—whether all this will happen. To an extent, I echo the question that the hon. Member for Stone (Sir William Cash) asked. Germany may well resist mutualisation because it involves taking on risk in other states, and other countries may resist subscribing to common rules. Although the five presidents report has a grand title, I suspect that the issues that it raises will be debated for some time to come, and it is not at all certain yet that everything it sets out will happen.

It is a great pleasure to serve under your chairmanship, Sir David. I congratulate my right hon. Friend the Member for Wokingham (John Redwood) on securing this debate, and I thank all participants. It has been enlightening. I particularly congratulate my hon. Friend the Member for Stone (Sir William Cash) on his election—I am surprised that anyone would dare challenge him—and am delighted that he has been returned in place as Chairman of the European Scrutiny Committee.

As previous speakers have said, the UK’s relationship with the euro area and further euro area integration raise important challenges. That is particularly the case in the context of the situation in Greece. By not joining the euro, the UK retained the economic flexibility to adjust to shocks. This Government cannot be clearer: we are committed to keeping the pound and staying out of the euro area. Under protocol 15 of the treaties, the UK has a permanent opt-out from the euro area, so we are

“under no obligation to adopt the euro”.

That said, it seems likely that the euro area—I stress “the euro area”—will need further integration to stabilise its economy. That is the premise of the recent five presidents report. Our position is simple: the EU must be flexible enough to meet the interests of both those inside the euro area and those outside it. The single currency is not for everybody, but the single market is, so it must work for all of us. My right hon. Friend the Chancellor has made it clear that, as the euro area integrates, we will need to reconcile the integrity of the EU as a collection of 28 member states with the integration of the euro area as a currency union of 19 economies. Our interests as a euro-out must be protected.

The immediate outlook for the euro area is improving. Its first-quarter growth was 0.4%, the fastest rate of quarterly growth since 2011. Nevertheless, the outlook for growth remains sluggish, which should be of concern to us all. The lesson from our own experience in the United Kingdom is that what is needed to embed recovery is a mutually reinforcing mix of active monetary policy to stimulate demand, maintain price stability and support the flow of credit to the economy, clear commitments to medium-term fiscal discipline that provide a firm anchor for market confidence and a focus on growth-enhancing structural reforms to rebalance and strengthen the economy. We therefore welcome the European Central Bank’s recent actions to stimulate the economy and tackle the potentially damaging threat of deflation. However, as the latest forecasts show, ECB action alone is not sufficient to change materially the euro area’s growth trajectory. Structural reforms are crucial to support the effectiveness of the ECB’s action.

The Chancellor has long made clear his view that there is a remorseless logic meaning that the euro area, like any currency area, needs closer economic and fiscal integration to secure its future. The recently published five presidents report is part of an ongoing process to identify next steps to better governance in the euro area.

Is it our Chancellor’s view that there should develop in the eurozone a single state with a single Government?

The logic of the position—this point was made by numerous right hon. and hon. Members before the formation of the euro—is that if there is a currency union, certain other things flow from it. Indeed, we are seeing the consequences of that. In a way, it is the background to the five presidents report. It is part of an ongoing process to identify the next steps to better governance in the euro area. There is a clear appetite for reform demonstrated by the process, which echoes the conversations that the Prime Minister and Chancellor have had in their bilateral discussions. The Government have submitted two written contributions to the five presidents’ process. We note the report’s proposals and have set out its content and implications in an explanatory memorandum. Therefore the Government do not currently plan to issue a further formal response. However, although the report’s focus is on the euro area, many issues it covers affect the interests of all member states. The UK will therefore remain fully engaged in discussions in this area.

So far, other member states have expressed a range of views on the report’s proposals. It is worth nothing that these reviews have been mixed. As I said, it is in our interests that the euro is a successful, strong currency area, so we do not want to stand in the way of the euro area resolving its difficulties. However, we will not let integration of the euro area jeopardise the integrity of the single market or in any way disadvantage the UK. The Government are pushing for further reform to improve the single market, focusing on the digital single market; further liberalisation of sector-specific services; and better regulation for small and medium-sized enterprises.

In return for supporting the euro area’s efforts to stabilise its economy, we want a settlement between the UK and the euro area that protects the single market, that is stable and fair and that lasts. This is in the interests of everyone—it is the basis for stable and sustainable governance of a reformed and prosperous EU—and is one of the UK’s important objectives in its renegotiation with the EU.

It has been 40 years since the British people last had a say on our EU membership. The organisation has changed vastly since then and it is time that we addressed this matter. The British public are clear that they are not happy with the status quo. My right hon. Friend the Prime Minister is determined to address those concerns. He has already talked about four areas where he wants change: sovereignty, competitiveness, immigration and fairness. For example, ever-closer union—a theme that runs through the five presidents report, to some extent—may be right for others, but it is not right for Britain, and change should include increasing economic competitiveness to create jobs and growth for hard-working families, and reforming welfare to reduce the incentives that have led to mass immigration from Europe. Those things are important to us. These reforms will improve fairness, which cuts to the heart of today’s debate: protecting Britain’s interests outside the euro. They will also improve the EU’s effectiveness as a whole. We want a dynamic, competitive, outward-focused Europe, delivering prosperity and security for the benefit of every country in the EU, with the UK playing its role.

In a nutshell, on current account transactions, the UK runs a deficit with the other 27 member states of well over £60 billion a year. Germany, on the other hand, runs a surplus in the same year. How on earth can we continue on that basis?

In the time available, I will not attempt to address that point in great detail. I hope my hon. Friend will forgive me.

A key part of the UK’s response to the five presidents’ process was the need to focus reforms, as well as the work of the institutions that the presidents represent, on the important priorities of delivering jobs, growth and stability to the European economy. Working alongside national Parliaments to drive competitiveness and streamline costly processes should be at the heart of the EU’s mission. That will be the foundation of public support and legitimacy for the EU.

Efforts to improve competitiveness go hand in hand with improving our own productivity. We support the euro area in sorting out its own problems so it can function more effectively. We will not allow further integration of the euro area to jeopardise the integrity of the single market, or in any way disadvantage euro-out countries like the UK.

I think that the debate illustrates that we need rather more time to do justice to these mighty issues. I hope that the Government take away from this short debate our enthusiasm for a new relationship with the EU and the opportunity that the five presidents report proposes. Let me reassure the Labour representative, the right hon. Member for Wolverhampton South East (Mr McFadden), that I said clearly that I wanted Labour to succeed and did not want to get in their way, but we ourselves must opt out of the wild ride to political union.

Motion lapsed, and sitting adjourned without Question put (Standing Order No. 10(14)).