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European Council: 13-14 March 2008

Volume 700: debated on Monday 17 March 2008

My Lords, with the leave of the House, I shall now repeat a Statement made in another place by my right honourable friend the Prime Minister. The Statement is as follows:

“With permission, Mr Speaker, I would like to make a Statement about the European Council held in Brussels that I attended with my right honourable friend the Foreign Secretary on 13 and 14 March. I begin with the most immediate concern that the Council addressed: the need to ensure that, faced with global financial turbulence and what the Council identified as a deteriorating global economic outlook, high global oil and commodity prices and volatility in exchange rates, we continue to do all we can with co-ordinated action at a European and a global level to maintain stability and growth.

“All European member states agreed to measures for greater financial market transparency: first, prompt and full disclosure of exposures to structured products and off-balance-sheet activities; secondly, more rigour in credit ratings; thirdly, improvements in valuation standards, particularly for illiquid assets; and, fourthly, a strengthening of risk management under the capital requirements directive.

“Given the globally transmitted nature of the risks, it is clear that many of these recommendations—the changes to credit rating agency operations and assessments, risk management and disclosure by global financial institutions and the changes to capital adequacy rules and arrangements for valuing financial instruments, which have now also been proposed by the American Administration—can best be implemented at a global level.

“In welcoming this international dialogue as the first step in reform, I can tell the House that my right honourable friend the Chancellor of the Exchequer is today writing to members of the International Monetary Fund, the G7 and the Financial Stability Forum to call for agreements on co-ordinated international action on transparency and disclosure, better risk management and action on credit rating agencies when the G7 and the IMF meet from 10 to 12 April.

“In line with the approach of other major central banks, the Bank of England has this morning announced a further £5 billion liquidity support to financial institutions, and a new group has been set up to improve liquidity in the mortgage market.

“At the European Council, I made clear that, while our economy is resilient and the fundamentals are strong, we will at all times remain vigilant and, particularly at this time of global uncertainty, we will continue to take whatever action is necessary to maintain economic stability.

“The Council also discussed, and I strongly welcomed, a new approach to the rising number and economic power of sovereign wealth funds, now worth $2 trillion, but potentially soon to be worth $10 trillion. Our new approach of calling for a voluntary code of conduct based on best practice, openness, transparency and corporate governance is one that will enable funds to show that they are commercial in their operations.

“The Council also discussed food and energy price inflation and agreed further steps to monitor worldwide inflationary pressures. We agreed that the current global financial turbulence was not a reason to postpone the fundamental economic reforms that are essential to building a more competitive European economy, and that we now need to press ahead with the liberalisation of markets and with new investment in knowledge and innovation. This includes further liberalisation in the energy, post and telecoms markets, where market opening could generate between €75 billion and €95 billion of potential extra economic benefits and create up to 360,000 new jobs.

“We discussed the need for an economic reform strategy that looks beyond Lisbon—a comprehensive strategy to improve the business environment, strengthen the EU’s economic relations with China and India, put our creative and knowledge industries at the forefront of the world economy, and make European universities leading global players, particularly through increasing their contacts with business. The next stage of the Lisbon agenda will include a review of human capital and skills in Europe and a renewed focus on competition policy in the EU single market.

“The second major issue discussed by the Council was climate change. It is essential that we achieve our ambition of a comprehensive post-2012 agreement to reduce greenhouse gas emissions and create a global low-carbon economy. In December, Europe’s united front at the climate change negotiations in Bali played an important part in the historic breakthrough that agreed the need to make large cuts in emissions, and achieve a new climate deal within the next two years. Only a common European approach—a Europe with Britain not at the margins but at the centre, leading the world—can ensure a global low-carbon economy founded on a global carbon market. Building on that commitment to move towards a low-carbon economy, the Council agreed an ambitious schedule for adopting a package of measures to cut EU emissions by 20 per cent by 2020, or by 30 per cent as part of an international agreement.

“The Council also agreed with the UK on the need for an effective EU Emissions Trading Scheme to provide the incentives to drive carbon reductions in the most cost-effective way, and for an EU ETS cap on emissions set centrally with a clear emissions reductions trajectory to give investors the predictability they need.

“The Council also considered a report from Javier Solana, the EU high representative on foreign affairs, on the security implications of climate change, and at the UK’s request agreed to submit recommendations on follow-up action—including intensifying co-operation with countries outside Europe—by the end of this year.

“Meeting the EU’s climate change targets requires not just action to reduce carbon emissions from energy suppliers and from industry, but incentives to change individual behaviour as well. The Council will now invite the Commission—in bringing forward its legislative proposals on VAT rates, due in the summer, and working with member states—to examine areas where economic instruments, including VAT rates, can play a role in increasing the use of energy-efficient goods and energy-saving materials from, as the UK has proposed, insulation and household materials to energy-efficient electrical goods.

“The Council also agreed on the importance of achieving an effective, fully functioning and joined-up internal energy market as an essential condition for the secure, sustainable and competitive supply of energy in Europe, committing to an energy agreement by June this year. It is clear that the EU’s energy security is strengthened by a policy that takes a collective approach to third-country producers, notably Russia.

“Europe can also play an important role in ensuring stability beyond its borders, and the Council agreed to build on existing co-operation to establish a ‘Union for the Mediterranean’ to promote security and stability in the wider region and to provide a framework for co-operation between the EU 27 and other Mediterranean coastal states on political and security issues as well as economic, social and cultural affairs. That new union will be launched during the French presidency in July this year.

“We also agreed that international development issues and the achievement of the millennium development goals—and Europe’s continuing leadership as the biggest contributor of aid—would be the subject of a major discussion at the European Council in June.

“The outcome of the Council and the preparations being made for the June Council affirm the conclusions of the debate we have had in this House over the last nine weeks, demonstrating that, with the completion of the Lisbon treaty, we now have an opportunity to move beyond institutional issues to create a more outward-looking, flexible, global Europe and to address the challenges that matter most to the citizens of Europe.

“With 700,000 businesses, 3.5 million jobs and 60 per cent of our trade dependent on our relationship with Europe, we should do nothing to put the stability of that relationship at risk. It is only by working constructively with and remaining fully engaged with our European partners that we can address the challenges ahead.

“And as we prepare for the European Council in June and the French presidency later in the year, our aim is that European countries working together lead the way on climate change, on security, on international development and on the response to global financial turbulence. I will be discussing with President Sarkozy when he visits Britain next week how we can take these issues forward; and I commend this Statement to the House”.

My Lords, that concludes the Statement.

My Lords, I begin by thanking the Leader of the House for repeating the Statement. I do hope that, unlike at the treaty signing ceremony, the Prime Minister on this occasion managed to get there on time.

My Lords, it was a good joke.

On the Statement, there were some welcome initiatives at the summit conclusions, or at least some warm words, if “warm” is a word that can ever be applied to the turgid prose of these communiqués. It was good, for example, to see further commitments on climate change, which scarcely figures in the EU treaty. But can the noble Baroness explain why specific targets to reduce energy usage in government car fleets by 10 per cent in five years, which were in the draft conclusions, were removed from the final communiqué? I know that the noble Baroness will think that I am making another joke, but I am not. Was it perhaps the news that we heard at the weekend that the noble Lord, Lord Jones of Birmingham, is going to keep his 2-litre Jaguar car, as opposed to having one of the energy-efficient vehicles which other Ministers are obliged to maintain? Perhaps that is why the Government could not agree to the targets. There must be a reason and the noble Baroness can tell us.

Was there discussion of the programmes on carbon capture? Did the Prime Minister win support at the summit for renewed investment in clean coal? What progress was made on the desperately important issue of energy security, on which we have dithered for far too long? The communiqué speaks of agreement on security in a new energy action plan in spring 2010; but does this not simply serve to show the hopeless lack of grasp in Brussels of the urgency of this issue? I hope that the noble Baroness could press the Prime Minister for far more urgency on that subject when he next goes to a European summit.

There was much talk in the communiqué—and I am sure there was much talk at the summit—of the stability of financial markets. Stability is of course the Government’s new buzz word. I think that it was used 28 times in the Chancellor’s Budget speech last week. However, given what is happening now in the markets, stability has about as much connection with today’s realities as a communiqué from the Flat Earth Society.

Was there any discussion of Northern Rock during those meetings? Did any other leaders compliment the Prime Minister on his handling of the crisis as a blueprint for their own finance Ministers—or not? Very importantly, did the Prime Minister bring home a single assurance that the UK would not be pursued for illegal state aid following the nationalisation of this bank? Have there been any approaches from another state about pursuing the UK for illegal state aid in the case of Northern Rock?

The Prime Minister said four years ago that it was unacceptable that at least 50 per cent of regulations came from Europe. What, practically, has he done about it? When we heard the Statement on the previous summit, I asked the noble Baroness to give an example of an EU regulation on business that had been scrapped since the previous summit. I do not suppose that she has managed to find out yet, because her officials will no doubt take a great deal of time to find that out; but if she has the information, I hope that she will share it with us. Why are new regulations still being added? Can she confirm that, according to the British Chambers of Commerce, 70 per cent of the cost of regulation in the past decade is down to the EU? The communiqué is frank in admitting that the already feeble efforts to reduce EU regulation need to be stepped up. So why does the communiqué envisage removing regulations on small business only if that is line with the acquis communautaire? Is not the root problem that too much regulation is already in the acquis communautaire and it will require far more radical resolve if the red tape strangling European competitiveness is to be dealt with?

Let us take one example. In November 2006, the Prime Minister said that he was “pleased for all holidaymakers” that he had succeeded in raising the £145 limit on the value of goods that can be imported into the UK without duty. He said that he wanted a £1,000 limit, so can the noble Baroness tell us why the limit is still £145? When will a £1,000 limit come in? Is it not true that the Prime Minister has failed to get this agreement within the European Council of Ministers?

The conclusions also warn Governments about the danger of high deficits. I expect the noble Baroness can confirm that Spain’s budget is in balance, that Germany, the Netherlands, Denmark and Sweden all have budget surpluses but that Britain has the largest deficit in western Europe. Is that not a telling comment on the wasteful handling of national finances over the past 10 years?

In the communiqué there is nothing about continuing atrocities in Zimbabwe and Darfur. Why not? The Prime Minister took the right stand in relation to Mr Mugabe, but did he take the opportunity to rebuke certain other leaders for their deplorable weakness in meeting this tyrant? The Prime Minister said last year that he would seek EU sanctions on Iranian oil and gas investment and its financial sector. Why have no new sanctions been agreed?

While Ministers were in Brussels, the situation in Tibet was becoming a cause of major international concern. Senor Solana was swift to say that events in Tibet would not stop him being in the front row for the Beijing Olympics. I will forbear to comment, but what discussions took place on this issue and what action do EU Ministers now propose? We hear of calls for restraint but in the UK Government’s view, what comprises restraint? China is a great nation with an immense potential influence for good in the world. Is it not essential that it rises to the challenges of pluralism in the 21st century?

Finally, does the noble Baroness know whether the Prime Minister was congratulated on the vote in the other place to block a referendum on the EU treaty? Did any other leaders perhaps seek his good offices in arranging meetings with Mr Clegg to learn from that leader how to avoid a referendum commitment? There may well have been sighs of relief from other EU leaders about the junking of the commitments given to the British people by Labour and the Liberal Democrats. However, praise abroad is one thing; anger and disillusion here is another. Therefore, will the Government, even now, honour their crystal-clear pledge to the people of Britain to hold a referendum, entered into to help them to secure a return to office in the general election in 2005? This is something that many on all sides of the House would surely expect and something to which we shall return many times in the coming weeks.

My Lords, it is becoming an increasing pleasure to follow the noble Lord, Lord Strathclyde, on these Statements because he meanders around looking for a belt to hit below, he always has a few good jokes, and he always ends up with an attack on the Liberal Democrats, which makes me feel wanted.

If the Prime Minister did anything in Brussels about recent events in the Commons, I am sure he shared with the 25 other members of the European Union, which are going through a parliamentary process to ratify the amending treaty, an agreement that this was a very sensible way ahead. I am sure that if he had talked to the Irish Prime Minister, he would have learnt that, so far as I am told, the great treaty debate and referendum in Ireland are turning not on the wisdom or otherwise of Ireland ratifying but on this being a good opportunity to rap Bertie Ahern over the knuckles over some alleged malpractice in Irish government. Of course, that is always the problem with these things: you ask the people one question and they answer a quite separate one. My goodness, we have brought the noble Lord to his feet.

My Lords, the noble Lord will readily admit that a couple of years ago the Liberal Democrats were saying that there should be a referendum, so they were not against referendums in principle.

My Lords, on 1 April, probably the best day of the year to have such a debate, I will explain in full and take the noble Lord step by step through Liberal Democrat thinking on this matter. I am glad that he mentioned the Flat Earth Society. I am sure we shall have quite a few contributions on 1 April from that learned organisation—mainly from behind the noble Lord.

On the communiqué, I was much relieved that not only did the Prime Minister arrive on time but he seemed to have enjoyed himself and to have had a good, practical, effective working time, which we are now arguing we want to move to in dealing with Europe, instead of having an argument that looks back over 50 years. What slightly depresses me about 1 April is that not only will I hear the same arguments that I have heard since I first joined the European movement in the early 1960s, but those arguments will be made by some of the same people.

One encouraging point about the Statement is the way in which it reminds us that, in a time of chill winds and uncertainty, it is good to have the strength of the European Union around us. Perhaps in future months we shall hear less about the wonders of the Anglo-Saxon model when comparing various economic performances. It is certainly good that the Prime Minister has had the opportunity of close co-operation and consultation with colleagues at a time when an economic storm is coming in from the west and when we shall need all the friends we can get. I recommend to the Minister and to the noble Lord, Lord Strathclyde, the speech made by the noble Lord, Lord Jones of Birmingham, on Friday about the need and the value of the single market and how that will be so important to our economic future.

On climate change and energy, the big problem is that the Prime Minister had a better record in Brussels than he did in his Budget. Although the noble Lord, Lord Lawson, is poised to tell us that we do not need to worry about making a real impact on renewable technologies and combating climate change, to those of us who are worrying I say that we need more actions to match the pious words.

I agree with the noble Lord, Lord Strathclyde, on Tibet. It is necessary to know what was said at that time. I was encouraged by the idea that the Lisbon agenda—not the treaty—needs to be moved back to centre stage and built on, which we would support.

On Russia and energy, my only concern is that we are almost being egged on to a new confrontation with Russia. There is a need for Europe, for energy and other reasons, to get into a serious dialogue with Russia rather than seeming to embrace a Cold War mark 2.

I have come back from Tunisia where there is considerable interest in and almost a demand on Europe. While I understand that in recent years there has been a great deal of concern about Europe to the east, Europe's southern neighbours need our attention as well. In the approach to President Sarkozy’s initiative on the Mediterranean, I hope that there is not the usual knee-jerk reaction: “It is French, therefore it must be a plot against us”. There is an opportunity to take initiatives on areas of real importance—not just energy supply but immigration from the south into Europe. I have always felt that some lasting solution to the problem of the Middle East may involve the European Community in a broader Mediterranean treaty.

For the rest, I found the Statement realistic. We have our criticisms of the Government and our doubts about the response to some of these issues. At least it underlines and strengthens an issue which will preoccupy us from 1 April onwards: whether European Councils will address important issues relevant to the British people, or whether we will be mired in old, long-dead arguments.

My Lords, I begin where the noble Lord, Lord McNally, left off. What was so important about this particular Council was that my right honourable friend the Prime Minister was fulfilling his commitment to move European debate on from institutional change—which, when we ratify the treaty, will be complete—into a new phase of dealing with issues directly relevant to the citizens of this country and the European Union.

I was struck when I looked at the Council agenda to see that every single issue under debate, or which was discussed in the margins, was relevant and appropriate to be discussed across the European Union. Climate change, financial instability and some of the international issues that noble Lords have raised from the Front Benches must be addressed with a concerted and, I believe, European approach. I am delighted that my right honourable friend was there—on time—and took part. Clearly, the agenda was very much focused on his agenda and he played a prominent role for this country, as one would expect. I pay tribute to him, as I am sure the whole House would, for leading for Britain. That is an important part of the work of the Prime Minister and it is an important time in our deliberations in Europe as we face the challenges ahead.

On car fleets, it finally turned out that the communiqué did not alter at all; it says exactly what it said before. It urges national Governments and institutions to set examples. My noble friend Lord Jones can defend himself extremely well, but this is about him being seen, as Trade Minister, to be driving a British car; he feels passionately about that. The only addition to the communiqué was to do with VAT and the opportunity of using it, which, as noble Lords will realise from the Statement, is being taken forward by the Commission. If anything, our response on these issues was to strengthen the final statements.

The noble Lord, Lord Strathclyde, raised the important issue of carbon capture. Page 13 of the communiqué recalls that,

“the objective of proposing a regulatory framework on carbon capture and storage … is to ensure that this novel technology is deployed in an environmentally safe way, which will be demonstrated through projects, as agreed … in Spring 2007”.

It is important, as the noble Lord will know, to do this by checking and working out exactly how we could complete it. That must be done in a piloted way.

I do not know whether Northern Rock was specifically discussed; I was not there. However, my right honourable friend would have made clear how Britain has solved for the moment the issues raised and how we are, as ever, keen and concerned to ensure that we have a stable economy. I make no apologies for my right honourable friend the Chancellor of the Exchequer talking about stability and the importance of how we move forward economically in the Budget. I would expect him to do that; it is an important time, when we must be vigilant of what happens in the European and global economic markets. Noble Lords only have to listen to the news—it is mentioned practically every day—to know the relevance and importance of that.

A lot of work has gone on on scrapping regulations. The noble Lord is absolutely right: I cannot give him a regulation today. I am determined to get him a list, however, to make my point. No doubt he will return to this in our deliberations on the EU treaty in any event.

The noble Lord’s point about small and medium-sized enterprises and small businesses in particular is important. There was some good language in the Council on better regulation, as the noble Lord indicated. It is in line with our priorities. The French have specifically said that they want to make issues around small and medium-sized enterprises a priority. They may push for legislation to look at what that means for competition. This will clearly be a growing issue, which noble Lords will welcome.

On the international issues that were raised, as I understand it, Tibet was not discussed formally within the Council. Noble Lords will know of our concerns. Indeed, on 14 March, the Prime Minister said that we are very concerned at what is happening. We have asked for more information and we are keeping the matter under review. My right honourable friend the Foreign Secretary said that there is concern among all European countries, which are seeking clarification on two important messages: first, the need for restraint on all sides; and, secondly, the need for substantive dialogue as the only way forward. We see real strains there, but the only way to deal with this is dialogue.

Finally, the noble Lord is right that the European Council approved the principle of the union for the Mediterranean, which will be open to EU member states and southern Mediterranean partners. It will reinforce existing co-operation through Euromed, which the noble Lord, Lord McNally, will be familiar with. The idea is that the Commission will come forward with more detailed proposals in advance of the July summit in Paris, which will launch the union for the Mediterranean and deal with the issues that the noble Lord indicated.

My Lords, the noble Lord, Lord McNally, is right that we do not need to worry about global warming. He will see why if he reads the book that I have written, which comes out in about three weeks’ time; I hope that with his characteristic open-mindedness he will read it and inform himself. I shall ask the noble Baroness a question that was increasingly puzzling me as she was going through her Statement. It is clear that the Government’s climate change policy—which is, I am afraid, the same as the climate change policy of my own party and equally misguided—requires a substantial increase in the price of energy. That is what the emissions trading system and its successors are about. Yet, whenever the price of energy goes up, we have the Prime Minister lecturing OPEC that it should produce more to moderate the increase and we have the Chancellor of the Exchequer calling in the generating companies to say that they must not put their prices up as much as they have. Will the noble Baroness the Leader of the House state simply whether Her Majesty’s Government wish to see higher energy prices or lower energy prices? A one-word answer will do: “higher” or “lower”.

My Lords, I am looking forward to a free copy of the noble Lord’s book, which he has so successfully—I have got to buy it?

My Lords, that is an interesting idea. I look forward to seeing it in any event. Perhaps I shall borrow it from the Library. I shall not give a one-word answer, and I shall explain why. We want to see energy prices that people can afford and high-quality energy provided through diversity of provision. The noble Lord will know very well that a lot of the work that is going on across government is considering how to provide security of energy for industry and the consumer in terms of supply, affordability and diversity in order to make sure that we have the variability that we need. The ambition is to have a diverse system of energy supply and energy that is affordable for business and to the economy working with our partners in Europe and globally.

My Lords, I thank the noble Baroness for her responses on the questions that have been raised so far. It is encouraging to hear that small business will be addressed following the recent discussions. I draw attention to the example of the Netherlands, where the impact assessment of regulations and Bills is run by an independent organisation. In the other House, I frequently raised this when Bills came forward. Our impact assessments have improved, but can we look at the European experience, particularly the experience in Holland, where an independent organisation looks at the impact of regulations and Bills on small and other business?

My Lords, I am grateful to the noble Lord. Indeed, I will be surprised if Dutch Ministers do not make that very point. It will be of interest to see how far the Commission can produce ideas and proposals in the context of considering better regulation across Europe, which again is one of my right honourable friend’s key agendas for the future of Europe, within the context of ensuring that small businesses can compete and procure successfully.

My Lords, will the noble Baroness explain a couple of points in the communiqué? Like other noble Lords, I scan these communiqués avidly for evidence of added value from Europe, but I struggle to understand the conclusion on page 3 that the European Council recognises the role of local and regional level in delivering growth and jobs and asserts that increased ownership of the growth and jobs agenda at all levels of government will lead to more coherent and effective policy making. Will the noble Baroness explain what the UK Government will do as a result of that conclusion?

Secondly, to pick up the point made by my noble friend on deregulation, page 6 of the communiqué confirms the desire to reduce the administrative burdens arising from EU legislation by 25 per cent by 2012. I think that I am right—perhaps the noble Baroness will confirm it—that this is a general, not only small business, commitment. Given that the treaty that is being advocated makes it easier for the EU to legislate in a number of areas, I found this an interesting commitment. Have the Government any recommendations for how the EU can achieve this and, if so, could they put them in front of the House?

My Lords, I am grateful to the noble Lord. On his first point, I say at the risk of us becoming a little anoraky and for those who do not have the conclusions in front of them that I understand from page 3, which is about the delivery of growth and jobs, that there is a commitment to ensure that at all levels of government—whether in central government, in local government, across the European Union, in the Commission and so on—people understand the agenda, relevance and importance of economic growth and the creation of jobs and wealth for nation states and across Europe. That means that people will think better about their policy making and will, we hope, link it all together to make it more coherent. I agree that the language of these communiqués sometimes leaves much to be desired—inevitably we are in the world of translations as well—but that was my interpretation of it. I hope that that addresses the noble Lord’s point.

The reduction of administrative burdens is linked to the section on unlocking business potential, especially for small and medium-sized enterprises, but the noble Lord may be right about the administrative burdens target. I will have to come back to him on the specific details of what we are doing. I will put them in the Library of the House, which I think is what the noble Lord wants me to do.