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Economy: Eurozone

Volume 719: debated on Monday 21 June 2010


Asked by

To ask Her Majesty’s Government what representations they have made to members of the European Union to protect the British economy from the financial situation in the eurozone.

The Chancellor of the Exchequer and Treasury Ministers attend regular meetings of EU Ministers, including the Council of Economic and Finance Ministers—ECOFIN. These discussions cover a wide range of issues, including the ongoing situation in sovereign debt markets.

My Lords, I thank my noble friend for his Answer, and I draw attention to my entry in the register of interests. I have two points to raise with him. Funds have been established to try and help countries in the EU that are in difficulties, but one of the underlying causes of those difficulties is the loss of competitiveness. Is that likely to be solved before the money and time run out? If it is not solved by then, what then happens?

Secondly, I draw my noble friend’s attention to the alternative investment fund managers directive that is currently being imposed on us. The European Parliament estimated that that directive would cost the European Union as a whole roughly 0.2 per cent of its GDP, but, as most of the alternative investment funds are in the United Kingdom, the potential cost to us is much greater. Have the Government managed to draw any of this directive’s teeth? If not, how much is it likely to cost the United Kingdom?

My Lords, I will deal first with the question of competitiveness. The UK Government, the European Council and the Union well recognise that competitiveness must be improved in parallel with steps that are being taken to deal with the immediate financial situation of a number of member states. I draw my noble friend’s attention to the EU economic taskforce under the leadership of the President of the European Council, Herman Van Rompuy, which will report to the October Council. As well as dealing with crisis resolution matters, it has competitiveness indicators very much on its agenda. Indeed, it considers competitiveness absolutely in parallel with crisis resolution issues, as well as more broadly as part of the Europe 2020 exercise.

On the alternative investment fund managers directive, the European Council and the European Parliament have each taken positions that do not agree with each other, so the UK Government and the industry have a short window up to the end of July in which to make final representations and attempt to make sure that we get the best deal for what is a very important industry for the City of London out of this trialogue process.

My Lords, does the noble Lord agree that a good way in which to protect the British economy would be to refuse to underwrite massive sums for Brussels, such as the £8 billion mentioned by his noble friend Lord De Mauley on 8 June, which are illegal under the treaties? How many billions are we going to be exposed to through the illegal breach of Article 125, which forbids member states to bail out others?

I thank the noble Lord for his questions. First, to be clear, it is the view of the UK Government that no illegal action has been taken under Article 125 or any of the other relevant articles. On the UK’s exposure, we have not as a country participated in the €440 billion special purpose vehicle for assistance. We do, however, participate in the €60 billion finance facility, which is available to any member state under Article 122.2 and which we think strikes an appropriate balance between the eurozone taking primary responsibility for stabilisation within the eurozone and the important part that we have to play as part of the wider EU 27. For completeness, we participate in the IMF standby facilities.

Can the Minister confirm categorically to the House that the Government will in no circumstances divulge to European institutions the thinking behind or the detail of proposed Budgets or the work of the OBR? Does he agree that if that categoric assurance cannot be given, there are grounds for a referendum?

My Lords, I can give an assurance that any request to submit the UK Budget to Europe will not be completed until the Budget has been submitted to and approved by the UK Parliament.

My Lords, does my noble friend agree that we want to see growth in Europe and businesses growing, expanding and being given the opportunity to borrow money from the banks? Is it therefore a sensible time to think about taxing the banks and reducing their ability to make that money available?

My Lords, I think that we will probably come back to the question of bank levies tomorrow after my right honourable friend the Chancellor of the Exchequer’s Budget. He has made it completely clear that the UK supports bank levies. We will take unilateral action, but we want to seek international agreement to make sure that the bank levies are, as far as possible, introduced on a common basis.

My Lords, the noble Lord will have noticed that he did not answer the Question on the Order Paper. Does he recognise that there are serious consequences for the UK if there is any major collapse in the economy in the eurozone, not least to the UK banks which have large numbers of debts owing from many countries within the eurozone? In those circumstances, should we not seek to help rather than hinder them and gloat over their difficulties?

My Lords, I am grateful for the reminder that not only are 40 per cent of the UK’s exports exposed to the eurozone—so we want to see a stable eurozone—but that through financial linkages the whole financial system, including the banking system, is exposed. That is why we believe that the forthcoming publication of bank stress tests is an important part of the support going forward.