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European Financial Stability Mechanism

Volume 727: debated on Thursday 12 May 2011


Asked By

To ask Her Majesty’s Government whether, in the light of the constitutional convention that no Parliament may bind its successor, they will review the commitment made by the previous Government to participate in the European financial stability mechanism.

My Lords, the constitutional question is a red herring in this case. The Government are focused on looking ahead. At the December European Council, the UK secured an agreement for the European stability mechanism to be replaced, by 2013 at the latest, with a permanent mechanism for assisting eurozone countries. The UK will not be participating in the permanent mechanism.

My Lords, I am grateful to the Minister for that reply, and I am sorry that he thought that part of my Question was a red herring. I will try a fish of a slightly different colour. I remind him that at the Davos economic forum President Sarkozy of France said:

“To those who would bet against the euro, watch out for your money … Mrs Merkel and I will never—do you hear me, never—let the euro fall”.

Given that unambiguous recognition that the eurozone ought to be able to sort out its own problems, will the Government now stop pouring good money after bad and give notice that they will withdraw from the European financial stability mechanism?

My Lords, we inherited the UK’s participation in the European financial stability mechanism from the previous Government. The decision was made between the date of the general election and the change of Government. We inherited that position. We have taken rapid action, and reached agreement at the European Council in December 2010 that the current mechanism will be replaced by a permanent mechanism by 2013 at the very latest, and that the UK will not participate in it. It is great to hear that the eurozone leaders, who the noble Lord quoted, are completely committed—as we understand they are—to supporting the eurozone. That is for them, and the UK will not be part of that future mechanism.

My Lords, does my noble friend agree that there is widespread surprise that the original financial stability mechanism was allowed to be established under Article 122 of the European Union treaty, which deals with natural disasters such as earthquakes and floods, not sovereign defaults, and that that was done despite Article 125, which specifically prohibits sovereign debt bailouts? Although my noble friend is absolutely right that the new stability mechanism is to come into place, that requires unanimity. If that is not achieved, is it not possible that Britain may be dragged into bailing out not just Ireland, for which there was an argument, but Portugal and Greece? If those provisions of the treaty are going to go on being ignored, surely the only result will be more scepticism and cynicism about the way in which the EU operates.

My Lords, my noble friend embedded a number of questions in what was apparently one question. As to the use of the different articles, another key part of the agreement at the European Council in December 2010 was that Article 122 would unequivocally not be used in future for these purposes. Without going into the debate about whether Article 122 should ever have been used for this sort of operation, it will not be used in future—that is agreed. As to Article 125, that is used for loans for medium-term financing under things such as the balance of payments facility and quite other purposes, and that will continue. As to the UK’s participation, the new mechanism has been agreed by the Council. Its resolution is completely clear. A treaty amendment will bring in the new mechanism. That position could not be clearer. As to Portugal, my right honourable friend the Chancellor has made it completely clear that as the negotiations go forward to completion, the UK will not participate in any bilateral loan to Portugal. Ireland was a special case, and the same considerations do not apply in the case of Portugal.

The House will have noted that the Minister brushed aside the constitutional preamble to the Question. I have some sympathy with him on that, but will he confirm that what took place after the general election had produced an inconclusive result and during the interim period was an entirely proper action by the Chancellor of the Exchequer at the time, Alistair Darling, who sought consensus from the Conservative Party before he went to ECOFIN and subsequently had that consensus confirmed by the Government when the Economic Secretary to the Treasury, Justine Greening, confirmed it on 21 July? Will the noble Lord take the opportunity to clear that up?

I am very happy to clear up the matter; I thought we had done that a week or two ago. Let me be absolutely clear. The previous Chancellor, Mr Darling, took the decision—it was still for him and the previous Government to take that decision. He consulted the Opposition. My right honourable friend the current Chancellor made it clear that he did not agree with the decision. The previous Chancellor consulted him on the course of action that was proposed and, in the words of my right honourable friend, it was for the previous Chancellor to reach that decision. The previous Chancellor reached the wrong decision. That was his decision; he made it.

Once again, the Minister is providing inaccurate information. The EFSM, to which we contribute through membership of the IMF, and the ESM, which we will contribute to until 2013, will be conflated into the new European stability mechanism, which we will still be funding through our membership of the IMF. Will he make that very clear?

The position as set out in the decision of the European Council is completely clear; it is that the new permanent mechanism will replace the current one. The current mechanism will cease to operate and the new permanent mechanism will deal with any matters that might arise after it comes into operation.