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European Union: Debts

Volume 719: debated on Tuesday 8 June 2010


Asked By

To ask Her Majesty’s Government whether Article 122.2 of the Treaty on the Functioning of the European Union has been or could be used to require the United Kingdom to underwrite £9.6 billion of other European Union member states’ debts.

My Lords, EU finance Ministers agreed on 9 May that up to €60 billion of emergency finance can be provided to any member state in accordance with Article 122.2. Only where there are defaults on loan repayments would there be a cost to the EU budget. Member states would be liable for a share. Based on the United Kingdom’s contribution to the 2010 EU budget, the UK’s share would be approximately 13.6 per cent, or up to a maximum of around €8 billion. Euro-area finance Ministers have also agreed a €440 billion package of assistance to be provided through a special purpose vehicle. The United Kingdom has chosen not to participate in this, and there is therefore no question of any liability arising to the United Kingdom.

My Lords, I thank the Minister for that Answer, and I welcome him to his new position. However, I have to point out that this article can only be used legally to help with natural disasters, such as earthquakes and so on. Is he aware that the Eurocrats are also violating Article 125, which prohibits financial bailouts of any kind? If so, can he tell us what the sum of all this illegality is going to cost us? Secondly, since this year we have to send a further £9.7 billion in net cash to Brussels, and since the TaxPayers’ Alliance puts the cost of our overall membership at £120 billion a year, has the time not come to review that membership, starting perhaps with an independent cost-benefit analysis?

My Lords, there were several questions in there. I shall first answer the noble Lord’s question about Article 125—the so-called bailout clause—which states:

“The Union shall not be liable for or assume the commitments of … governments … A Member State shall not be liable for or assume the commitments of … governments … of another Member State”.

That does not rule out member states lending each other money. The noble Lord refers to a figure of £9.6 billion. The Government do not recognise that figure. If he can give us a basis for it, we will look into it.

My Lords, I wonder whether my noble friend can help me on this point. If we had been foolish enough to join the euro, what would have been our contribution to the Greek bailout simply as a result of being a member of the eurozone?

My Lords, a package of assistance was agreed in early May for Greece, consisting of €110 billion over three years and comprising an IMF standby arrangement of €30 billion and an intergovernmental package of bilateral loans from euro-area member states of €80 billion. This is, of course, subject to strict conditions. I think noble Lords would agree that it is not for me to speculate on what might have been.

Will the Minister confirm that neither party of the coalition would support any support for the euro?

My Lords, so far as I am aware, despite the best efforts of noble Lords opposite, there is a quite remarkable degree of agreement between the two parties of the coalition.

My Lords, does the Minister agree that it is in the UK’s national interest, as well as that of Greece, that collective action has been taken by the EU to prevent the complete collapse of the Greek economy?

My Lords, I quite agree with my noble friend. We must be alive to the risks that the current uncertainty poses because of financial-sector linkages well beyond the euro area. The UK’s support for the €60 billion euro element of the package represents a sensible position that strikes a balance between UK support and the need for the euro area to take the lead in resolving these problems.

My Lords, as the noble Lord is undoubtedly aware, the exposure of British financial institutions to the heavily indebted southern states of the eurozone is estimated at more than £100 billion. In those circumstances, if the European authorities asked for British financial participation in an activity that would strengthen the security of British banks, would the Government participate? Yes or no?

My Lords, does the noble Lord agree that any scrutiny by the EU of the UK budget would be unwarranted interference in our domestic affairs?

Is the noble Lord aware that people simply will not understand why Britain has to make a contribution to the bailout of a member of the eurozone when the United Kingdom is not a member of that zone? What would our potential liability in a total bailout have been had we been members of the euro?

My Lords, the €60 billion euro element of the total €500 billion package is available in the existing EU budget, without a change in legislation, for any member state to drawn on. It is not confined to the euro area. While we declined to participate in the €440 billion element, we cannot and should not simply walk away. A strong and stable euro is in the United Kingdom’s national interest. More than 40 per cent of our exports are to the euro area, and I am sure the noble Lord would agree that it would be unwise to jeopardise that.

Does the noble Lord find it a little odd that all this questioning ignores the fact that, as a member of the International Monetary Fund and a substantial subscriber to its resources, we provide relief for any number of countries, both in and outside the euro area, and we should do so? That is the purpose of these institutions.

My Lords, given the strain that the weak members of the European monetary union are putting on the system, would it not be wise to consider possible contingency plans which could be used if one of them wished to withdraw?

My Lords, these are early days. Several countries have announced new packages of fiscal recovery measures in recent weeks. I am sure that my noble friend will agree that it would be inappropriate for me to comment on individual member states or to speculate on what might or might not happen.