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EU: Fiscal Compact Treaty

Volume 735: debated on Tuesday 7 February 2012


Asked by

To ask Her Majesty’s Government what progress they are making on discussions with European member states on the future legal basis for the European fiscal compact treaty.

My Lords, although the United Kingdom will not become a party to it, we have participated fully in discussions on the intergovernmental treaty on stability, co-ordination and governance in the economic and monetary union. The parties have set out their desire that its substance will be added to the EU treaties in the future. Any such addition to the EU treaties would need to have the agreement of all 27 members.

I thank my noble friend the Minister for the very substantial and indeed creative fence-mending by Her Majesty’s Government that has taken place since 9 December. Does he agree that although we are not yet members of the fiscal compact treaty, now that that has been successfully signed by all but two, it is our duty, as we stated before Christmas, to make sure that we help the eurozone authorities and the national leaders return the eurozone to its strength as a traditional international currency?

My Lords, I am happy to confirm to my noble friend that of course this intergovernmental agreement, which goes to the heart of strengthening the fiscal arrangements within the eurozone, is a necessary but not sufficient part of what we hope to see with the eurozone returned to health. There are a number of other critical elements, including sorting out the immediate situation in Greece, getting the European banks’ capital positions where they need to be, and so on.

My Lords, will the noble Lord be advising the Government to be one of the 27 member states agreeing to a fiscal solution to the problem or will the Government take the view that, whatever happens in the short term, in the longer term it is perfectly impossible for a country like Greece in the state that it is in to be able to have the same exchange rate and interest rate as Germany? In those circumstances, will the Government be making arrangements and planning for something to happen that would not be helpful, because, as the Chancellor put it, it would be disastrous if the whole thing broke up? Is contagion a bigger problem than many of us expected it to be?

My Lords, it continues to be the Government’s wish that the eurozone holds together and makes the arrangements, some of which I outlined in my previous answer. As I have said in answer to previous questions from the noble Lord, Lord Barnett, the Government take all precautionary measures and look at all scenarios that there may be as this still very severe situation continues to unfold.

Will the Minister have a shot at the question that I have given to two of his colleagues, which they have failed to answer so far, and state what objections the British Government have for the text of the intergovernmental agreement that will be signed at the end of this month?

My Lords, I think that my noble friends Lord Howell and Lord Strathclyde have given very good answers to that question in the past and there is nothing I need to add.

Will my noble friend take the opportunity of advising our right honourable friend the Prime Minister that in practical terms this is a setting in which the Prime Minister might be well judged to pay a little more respect to the advice of the Chancellor of the Exchequer than to that of the Foreign Secretary?

My Lords, I do not think that it is for me to tell my right honourable friend the Prime Minister in any way where he should seek advice but I am sure that he seeks the advice of all his senior Cabinet colleagues.

My Lords, following on from the Question asked by the noble Lord, Lord Dykes, I recognise the concern of the Government that a caucus of eurozone member states should not compromise the integrity of the single market, but does the Minister agree that the best guardians of that integrity are the Commission and the Court? How does he expect them to act in that role if the Government keep saying that they are reserved about the position of the Commission and the Court in the treaties and there is a chorus of criticism from his own Back Benches in the House of Commons demanding that these institutions be kept out of any role?

My Lords, the first thing is to be clear that the intergovernmental agreement is explicit that it cannot encroach on the competences of the EU and that the signatories to the intergovernmental agreement must not take measures that in any way undermine the single market. That is set out in the preliminary recitals and in Article 2 of the treaty. It is principally a matter for the signatories to the treaty. We have made it clear that the Government have a number of concerns about elements of this inter- governmental agreement, one of which is the use of EU institutions. Some of the proposed uses of EU institutions in this intergovernmental agreement are already in the EU treaties and others are not. The Government will watch very carefully how this develops.

My Lords, in an earlier answer the Minister referred to the recapitalisation of the banks in the eurozone as a necessary step. What action does he think is available if those banks fall short of successful voluntary recapitalisation and is further action necessary at the EU level?

My Lords, now that there is a realistic assessment of what capital is required, there is a clear agreement on the timetables and methods for doing that and it is well within the capacity of the eurozone to do it. I do not think we should speculate on what happens if they fail to do it. The eurozone, its Governments and the European Central Bank have all the firepower necessary.

My Lords, Europe and the UK will be going nowhere unless competitiveness is restored to individual countries. Does the noble Lord agree that at the heart of any fiscal compact should be a policy of growth and investment? Even from our position in the wings of Europe, will the Government agree to ensure that such a policy is implemented, not least to help the many millions of young people who are now unemployed all over Europe?

I very much agree with the sentiments of the noble Lord. The one part of them that I disagree with is that we are not sitting on the sidelines but are very much at the heart of the discussions about pro-growth policies and the completion of the single market.