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Economic and Monetary Union (EUC Report)

Volume 776: debated on Wednesday 9 November 2016

Motion to Take Note

Moved by

That this House takes note of the Report from the European Union Committee ‘Whatever it takes’: the Five Presidents’ Report on completing Economic and Monetary Union (13th Report, Session 2015–16, HL Paper 143).

My Lords, I thank all members of the committee who participated in the inquiry. I took over the chairmanship of the committee some 15 months ago. It was a daunting prospect to be chairing a committee comprising a former Chancellor of the Exchequer, a former Cabinet Secretary, a biographer of John Maynard Keynes, as well as several others with a thorough grasp of financial and economic affairs. During the year, we lost the noble Lord, Lord Lawson, as the Brexit campaign made a greater call on his time. The noble Earl, Lord Caithness, and the noble Lords, Lord Davies of Stamford and Lord Borwick, stayed with us through the inquiry, leaving us only at its end. This benefited us greatly, due to their expertise, and I am very much looking forward to hearing from the noble Earl in this debate today.

I also wanted to put on record my gratitude to our specialist adviser, Professor Iain Begg, from the London School of Economics, whose knowledge of EMU is objective, deep and thorough. We are lucky to have that level of expertise in our higher education institutions, given that we are not in EMU. I also take the opportunity to thank our small secretariat—our clerk, John Turner, who like me was new to the committee and had a baptism of fire, and our now departed policy analyst, Katie Kochmann, as well as Victoria Rifaat and Susan Ryan, who were our administrative assistants during the inquiry. All rose to the challenge with admirable speed and professionalism.

In undertaking this inquiry, I was conscious of an irony: that a national parliament of a country not in the eurozone and unlikely at that time to ever join, which is now confirmed through Brexit, was looking at how the situation within the eurozone would evolve, as that was the primary focus of the five presidents’ report. I believe that our committee is the only national parliamentary committee to have produced this level of scrutiny, and I am happy to report that it has been well received in the institutions that have been the subject of our attention.

Our inquiry was a response to a report in June 2015 from five EU presidents: the president of the European Commission, the president of the euro summit, the president of the eurogroup, the president of the European Central Bank and the president of the European Parliament. The report, Completing Europe’s Economic and Monetary Union, to which I shall refer throughout the rest of the debate as the five presidents’ report, was published against the backdrop of the Greek financial crisis after a period when the future of the euro itself seemed under threat. The report sought to build on a range of new institutions and reforms aimed at strengthening economic policy co-ordination, its convergence and of course eurozone solidarity, and to set out what future economic governance was needed to build the eurozone into an optimal currency and fiscal area.

Our starting point was that while we looked at the euro from a position of distance, we wished it well, as the then Chancellor George Osborne had said, as it was in the UK’s interest that the eurozone become a prosperous and competitive currency zone. Our interest was that, as far-reaching institutional changes came about, this would have an impact on the UK’s own economic governance and regulatory environment—hence our taking a more granular look at the proposals set forth in the five presidents’ report. One of the overarching questions that we were attempting to answer was about the future of the euro. It is widely accepted that the eurozone is not an optimal currency zone even at this point in time, and the question was whether the speed and depth of convergence after the financial crisis was adequate to ensure its survival. While several of our witnesses could fault the institutional architecture and balance, it became evident fairly quickly that all believed that so much political will was invested in the project that it would eventually muddle through. I am often asked a similar question in Brussels and Berlin relating to the UK and Brexit. My answer is similar: we too will muddle through.

Among the institutional developments we looked at were: whether the stability and growth pact was being implemented as originally intended; the extent to which fiscal rules were adaptable to shocks; the creation of an advisory fiscal board and the impact of it on the balance between national policy and euro-wide convergence; and banking union, with the ongoing debate between risk aversion and risk sharing.

Lying above all this was the very real concern we had about the distinction between what was needed at a technical level to make the eurozone function better, which was more easily identifiable for us, and the issue of sovereignty and democratic accountability. This was described in the paradox identified by the then Harvard, now Princeton, economist Dani Rodrik, where global markets, state sovereignty and democracy cannot coexist, and policymakers have to pick two of them—any two, as he put it, but he thinks it is not possible to have all three.

We came up against the Rodrik trilemma, as it is known in the economic world, in this inquiry in the judgments as to how far economic, fiscal, financial and political integration could go in the context of what are still sovereign states in terms of their budgets, fiscal policy and democratic accountability. We did not come up with a definitive answer, as too much of the detail of what is needed to move towards those integrations was not spelled out by the five presidents. The key document that will seek to flesh out that detailed institutional structure will come in the form of a White Paper around spring next year, with stage 3 of deepening economic and monetary union to commence from 2025. We look forward to its publication, conscious that the Brexit decision has changed the context quite dramatically for the UK economy and financial services, and therefore our own assessment of those developments.

So what did we find? There have been substantive changes to the stability and growth pact since 2005, particularly since the financial crisis, with the implementation of the six pack and the two pack, involving greater requirements for states to stick to domestic commitments to fiscal discipline, using deficit and debt criteria as metrics, with the Commission needing to improve states’ budgets. Needless to say the measures, while necessary in technical terms, have been implemented within a political perspective. For example, by 2009, most EU countries were under the excessive deficit procedure. Financial sanctions that therefore should have been deployed were not.

The majority of our witnesses saw this as undermining the system. Professor Erik Jones from Johns Hopkins University said that the fiscal framework applied in the eurozone was “completely optional” due to the political calculations employed. Megan Greene from Manulife Asset Management told us that fiscal rules in these circumstances should be set not as binding fiscal rules, but on a case-by-case basis. She gave us the example of Spain’s deficit, which had been 5% in 2014, as opposed to the requirement under the rules to keep it under 3% of GDP, but she thought that Spain was right and needed to run a larger budget deficit to emerge from the recession, as it eventually did.

Another issue was the procyclicality of fiscal rules and their amplification of austerity on growth. Christian Odendahl, from the Centre for European Reform, picked out an omission from the five presidents’ report, in so far as it did not even attempt to suggest that fiscal policy should try to achieve a strong countercyclical stance in a downturn. The report did, however, signal an intention to establish an advisory European Fiscal Board to, inter alia, advise on the prospective fiscal stance appropriate for the euro area as a whole, based on an economic judgment. I quote:

“Where it identifies risks jeopardising the proper functioning of the Economic and Monetary Union, the Board shall accompany its advice with a specific consideration of the policy options available under the Stability and Growth Pact”.

Our witnesses’ concern centred on the extent to which this board would be independent and the extent to which it would be advisory. The board has since been established. Its composition is interesting. The chair is Danish, one of the five members is Polish and the remaining three are from France, Italy and the Netherlands, so 40% of the composition of the board designed to facilitate the functioning of the eurozone is from outside the eurozone—a sign of inclusivity on the part of the eurozone, perhaps.

The other large part of our work was to do with eurozone steps towards risk reduction and risk sharing. Again, it was evident that both entail the pooling of sovereignty. If the emphasis was on risk reduction, inevitably national fiscal stances and national budgetary oversight by the Commission, as well as other surveillance measures, needed to be tightened. On the other hand, if risk sharing was to prevail, there would inevitably be fiscal transfers from some states to others, creating moral hazard. Our witnesses were clear that there needed to be both technical and political progress. European Commissioner Dombrovskis described risk sharing and sovereignty sharing, saying a balance would have to be struck between the two. Sir John Cunliffe, deputy governor for financial stability at the Bank of England, saw this balance as a prerequisite for a further pooling of sovereignty.

The core disagreement between member states is a hindrance to completing banking union. The example of the single resolution fund as a common fiscal backstop is a case in point. Professor De Grauwe of the LSE thought that because you would eventually need very deep pockets to resolve large failing banks in a crisis, you need the fiscal capacity to raise taxes. In effect, fiscal union was a prerequisite for a backstop to work.

Likewise the question of how much sovereignty to pool was central to the success of the European deposit insurance scheme. At the heart of the five presidents’ report is the ambiguity about what is meant by fiscal union. It was obvious from our witnesses that overall they interpreted it as implying a very high degree of integrated policymaking. Several saw it as a means of transferring more power to a super euro Commissioner or, in the words of German Finance Minister Wolfgang Schäuble, a eurozone Finance Minister.

It is evident that the greater centralisation envisaged in deepening EMU will involve a significant pooling of sovereignty. We could not see a commensurate focus on measures to improve democratic accountability, and this is the greatest weakness of the five presidents’ report. The steps that currently exist in this regard, such as the European Parliament’s oversight of EMU, the economic dialogues between the Commission, the eurogroup, the Council and the European Parliament, and the European parliamentary week when national parliaments are brought together, are inadequate, and if they are inadequate in the current form they will be more so as integration deepens. The European Parliament cannot be seen in the same light as national parliaments in terms of accountability to a citizen who, first and foremost, sees his national representatives as the accountable individuals who will respond to him. The European Parliament plays as good a role as it can, but there is a danger, as moves towards a state emerge in the eurozone, that the disconnect will deepen.

I shall conclude with the words of one of our witnesses, Phillipe Legrain, who, in summarising the problems facing the eurozone, said:

“We have election after election in the eurozone in which voters reject the outgoing Government, and the first thing that happens is that voters are told that they have to stick to the old policies of the government they have just rejected because EU rules say so, and I do not think that is desirable or sustainable”.

I have managed, on this rather significant day of American elections, to avoid talking about the American election result. In concluding, however, my one word of advice—were they willing to accept it—on behalf of our committee to those forming the new architecture of the eurozone, would be that it is important to put in place the democratic structures and accountabilities that are needed to respond to citizens’ concerns that still exist at national level. I beg to move.

My Lords, we are all extremely grateful to the noble Baroness for introducing this Motion, and I also thank her for the way she chaired the committee. It was a great honour and privilege to serve on the committee; we certainly learned a lot and, I think, produced a very worthwhile report, although the circumstances in which we made the report were slightly different from what they are now. I also thank Professor Iain Begg for his advisory work and our clerk and his team for their support.

We are having an unusual debate today: I do not think I have ever taken part in a debate on an EU report where most of it is now under changed circumstances. None the less, I was a little disappointed by the Government’s reply; more could have been written on the back of a postage stamp than what they gave us, and the Commission’s reply was not as detailed or specific as I would have hoped.

Despite the Brexit vote and the fact that the UK is going to leave the EU, the euro is of huge importance to us: the EU is our next-door neighbour and the eurozone is the second most important currency in the world after the American dollar. What happens, therefore, across the 22 miles of the English Channel is as relevant to us in the UK today as it was six months ago. To put this report into context, we should remember that it is the second report on EMU in the past four years: in 2012 we had the Genuine Economic and Monetary Union report, and I sat on the committee that produced the report on that. Three years later we have the report we are discussing today; next year we will have the White Paper; and I have no doubt that there will have to be further reports on EMU in the fullness of time.

Turning to the report, I start by taking up a point mentioned by the noble Baroness, about fiscal rules. There is no doubt that it is a weakness within the eurozone that fiscal rules are not followed in a fashion that most of us would comprehend. Too much is done on an ad hoc basis and, since we wrote the report, both Spain and Portugal have missed their deficit targets under the stability and growth pact and have not been fined by the Commission. Does that give us more confidence in the eurozone? I do not think that it does; it leaves us still wondering where that strength and consistency in fiscal rules—which is so much needed—is going to come from. In paragraph 54 of our report we welcomed the recently set up European Fiscal Board, but can the Minister tell us why it took so long for the Commission to set it up? They normally set these boards up quite quickly, but this one was rather long in gestation, for not very good reasons.

I move on to paragraph 143 of our report, where we talked about the European deposit insurance scheme. That is an old friend, part of banking union, which fell by the wayside, so perhaps it is second time lucky for the Commission on that. I hope so: when we wrote our report on genuine economic and monetary union those of us taking part were disappointed that the three-legged stool on which banking union was going to be based had become a rather wobbly two-legged stool, and EDIS is badly needed if there is to be a strong structure in banking union, albeit that the UK opted out of it.

Moving on, we looked at fiscal union. We were surprised by the number of definitions there were of that. I looked forward to the Commission’s response to our report to see what it might say to enlighten us, but I did not think its reply was terribly constructive. It did not help us—and there is a big weakness here in the EU. Until fiscal union is defined in a structured and sensible way that everybody can agree, there will always be areas for doubt and manoeuvre, which will lead to continued weaknesses.

The noble Baroness, Lady Falkner, also mentioned in opening the debate the need for,

“appropriate and accountable eurozone-level decision-making structures”.

We use those words in paragraph 194 of our report; they are increasingly important, given what is happening in many developed countries and the reaction by large groups of people to how Governments have behaved.

The noble Baroness refused to comment until the last moment on the USA election and I shall get in a little before the last moment. It was depressing to read today that the French ambassador tweeted:

“A world is collapsing before our eyes. Dizziness”.

That shows a view that is totally out of touch with what real people voted for and the change they want. For the German Foreign Minister to say that it was not the result that he or Germany wanted equally shows a disconnect with his own people.

Let us return to accountable and eurozone-level decision-making structures. These need to be altered and strengthened. At present, the House of Lords is considerably more democratic than the European Commission. We have 90 elected hereditary Lords, of which I am proud to be one. We are distinctly more democratic than the European Commission, and that needs to change for credibility in future.

To conclude, there is the recommendation we made in paragraph 205, concerning member states in the EU that are not part of the eurozone. I am sorry for them that the UK is coming out of the EU as that will make their lives much harder. I hope that they will not be subject to caucusing by the eurozone members. The fact that the president of the eurozone group was a signatory to this report gives me cause for concern.

However, another aspect to this is perhaps more worrying for the future of Europe. We all know about majority voting, but not many people understand that you can have a minority blocking vote as well. Britain not being a member of the eurozone was an instrumental partner in that blocking vote when things headed in the wrong direction. Without our vote, it will be much harder for the non-eurozone members. Germany will have to take a much more proactive line to get a better balance and stop some of the mad extremes that were suggested. We are still members of the EU and I hope that, when my noble friend sums up, he will say that we will still play an active role to the moment that we sign on the dotted line and get out.

My Lords, I speak not as a member of the committee but as an errant outsider who wandered in here. I congratulate the noble Baroness, Lady Falkner, on introducing this debate effectively. You cannot not mention the American election. The events in the US last night make the EU even more important as a bastion of cosmopolitan values in a world which seems bent on abandoning them. It clearly is threatening to the EU because it will further stimulate the rise of far right populism. Its consequences for the euro we do not know. As of this morning, the euro rose against the dollar, whatever that means.

I congratulate all noble Lords involved on the report, which is exhaustive and analytical. As other noble Lords have mentioned, what happens in the eurozone is highly important to the British economy and will remain so. A preceding report on the euro a few years ago featured only four presidents. Now there are five, as the European Parliament pushed to get involved in the act. I am a pro-European, but five presidents is an awful lot to take coherent decisions—and it does not even feature the true, as it were, informal president of the European Union, Angela Merkel.

The five presidents’ report opens by saying:

“The euro is a successful and stable currency… It has provided its members with price stability and shielded them against external instability”.

These would seem to be, on the face of it, somewhat wild claims. They are certainly disputed by many. However, there is a good deal of truth in the assertions. After all, it was unlucky to set up a new and ambitious currency just before the most profound economic crisis the world has known since the late 1920s, which was predicted by no one. Against that backdrop, the fact that the euro is still here, functional and popular is impressive.

We have no counter factual. We do not know what would have happened in the southern countries, for example, if the euro had not been there in the course of the economic crisis. However, we can guess that some of the weaker economies might have struggled. You cannot make a comparison between what happened at the moment, but their fate could have been even more difficult without the umbrella of security which the euro provided.

A prominent economist, whom I shall not name but who will be known to everyone here, and who is not sitting in this Room but is sitting in the US somewhere, proclaimed four years ago that Greece would exit the euro within a period of months. Many people said that. Yet, in spite of all its travails, Greece is still there and the euro is still popular in Greece and in most of the other eurozone countries, which is quite remarkable.

The Greek economist, Gregory Papanikos, has written an interesting re-evaluation of the Greek economy, which has impressed me. A great deal of suffering has gone on, but that economy has a robustness which is not visible except through a more profound analysis, which he provides. He accepts that there has been a deep recession in Greece since 2008—how could one not? Yet he shows that, even at the bottom of the recession, Greece was producing as many final goods and services as in its best year of the 20th century, when it was thought generally to be in reasonably good condition. This is without counting the huge informal economy where some of Greece’s strengths and many of its core problems, it must be said, lie. So things are not quite what they appear.

The five presidents’ report is right to point out that the euro thus far has been salvaged through firefighting, in an essentially democratic way, dominated by the dreaded troika of the Commission, ECB and IMF. The report rightly recognises the need for what it calls genuine democratic accountability. As noble Lords note, however, there is little in the report showing how this might be achieved on the transnational level that would be necessary. There are huge vacant lots, as it were, in the document.

Much of the five presidents’ report is about setting out a road map as to how the eurozone might move from short-term crisis management to structural solutions for the deficiencies of the existing system. However, as the committee’s commentary notes, not much is said in practical terms about how these successive stages that are mapped out will actually be implemented. Given the series of crises that the EU faces in addition to the problems with the euro, the document reads too much like a fair-weather set of proposals, rather than one where the innovations noted might face serious problems of political legitimacy.

The limitations of the proposals contained in the five presidents’ report seem pretty obvious. If they are not addressed, it is surely in part because no one can quite see how they could be dealt with politically. Beyond a certain point, the constituent nations see their interests differently and have contrasting approaches from the point of view of economic theory. Joseph Stiglitz sets things out pretty well in his book on the euro. A common monetary system cannot function effectively without a countercyclical promotion of demand and without at least some degree of mutualisation of debt to protect against shocks.

Looming over the whole document but, of course, unstated therein, is the dominant position of Germany within the eurozone and within the EU as a whole. Ideological differences are involved because of the role of—forgive the term—ordoliberalism in current German thinking. Ordoliberalism is essentially the German version of austerity. One prominent German theorist has pronounced that the bailouts enacted at the height of the crisis have allowed,

“feckless Mediterranean countries to get away with minimal reforms and only limited fiscal discipline”.

It is a view that resonates strongly with the German public.

Germany is in denial of its own dependence on the euro for its competitiveness, and hence for its surplus. That surplus has the effect of dampening demand in the countries of the south that most need it. Some level of proactive investment is essential if the eurozone is to achieve longer-term stability. When even the IMF has turned against austerity as actively counterproductive, it is time for European leaders to take note. We will have to wait for the Italian referendum of Mr Renzi’s Government and for the French and German elections to see if those leaders are able to respond.

My Lords, like the noble Lord, Lord Giddens, I was not a member of the sub-committee at the time this investigation was carried out—though I have joined it subsequently—so I will keep my contribution brief. This was an important piece of work, so I am extremely grateful to the noble Baroness, Lady Falkner, and the then members of the committee.

The five presidents’ report proposes routes to achieving not only sustainable economic and financial union but fiscal union—whichever definition you may choose—by as soon as 2025. Despite the fact that this weighty report from the five presidents was not exactly gripping reading for the layman, and did not, so far as I recall, form a major part of the argument in the pre-referendum debate, I have a feeling that, had the British public focused on it, it would have been unlikely to have changed the result. Not that most, if they stopped to think about it, would have objected to putting in place the very necessary reforms to reduce the risk of further financial and sovereign debt crises, and to increase democratic accountability. Indeed, many would have applauded such reforms, especially to achieve the latter aim. In fact, I suspect that many of those who voted to leave did so precisely because of the perceived absence of democratic accountability from much of the EU paraphernalia of government. So they should welcome the sub-committee’s strong urging that the issues raised in the report, particularly those relating to democratic accountability, be addressed—something that the noble Baroness, Lady Falkner, emphasised. They should also welcome the fact that, in issuing their report, the five presidents at least recognise that more needs to be done to ensure the long-term sustainability of the eurozone.

As the sub-committee’s report says, no one should underestimate the complexity facing eurozone national Governments, which will have to deal, among many other things, with tensions between what is appropriate for the eurozone as a whole and what is appropriate for the individual member state. It is indeed axiomatic that the effectiveness of this attempt at co-ordination will ultimately depend on political will at member state level, as will, for example, the operation of the European Fiscal Board. The sub-committee is unconvinced of the existence of enough such political will. Indeed, cynics will be unsurprised by the fact that the sub-committee’s report is littered with doubts about the ability or willingness of member states to make all this work. For example, it observes that member states’ adherence to the rules is patchy and liable to be influenced by domestic political pressures, and that they have an undesirable tendency to procyclicality in the exercise of fiscal policy.

In the context of strengthening the macroeconomic imbalances procedure and fostering long-term structural reforms at the member state level, the sub-committee points to a tension between ensuring member state ownership and creating an effective enforcement mechanism at the EU level. It expresses scepticism that financial sanctions under the MIP are any more likely to be used in the future than hitherto and opines that macroeconomic imbalances in the euro area are likely to continue to be a source of instability.

The sub-committee refers to several things which need to be put in place on the route to fiscal union: a stabilisation function, procedures for the transfer of funds and an unemployment reinsurance scheme. There are challenges, too, to the perhaps less-ambitious objective of financial integration, including a potentially ambitious risk-reduction agenda before risk-sharing through the European deposit insurance scheme takes place, and uncertainty surrounding the long-term common backstop to the single resolution mechanism.

The sub-committee quite rightly warns that plans for strengthening the eurogroup, although speculative, mean that our Government must keep a weather eye on the impact a formalised eurogroup might have on our position and do all they can to ensure that the UK is protected. It also sounds a warning note for citizens of eurogroup countries about the effects on them of the pooling of sovereignty and the potential results for democratic accountability.

The proposal for representation externally has been included by the five presidents among their plans for strengthening democratic accountability but, ironically, the sub-committee points to the very real conflict between democratic accountability and unified representation of eurozone interests at the international level, for example, at the IMF.

The sub-committee points out that it is foreseen that the terms which we hope are to be negotiated between the UK in its new settlement with the EU will be incorporated into the treaties at their next revision. The five presidents’ more fundamental proposals also require treaty change. While acknowledging that to achieve the latter by 2025 may be a tall order, this could provide a negotiating opportunity for the Government as they hammer out the UK’s new settlement.

Although the five presidents’ report will still be relevant to us, assuming Brexit proceeds, it will be less so afterwards than it would otherwise have been and, crucially, our ability to influence the drivers it refers to, if we miss this opportunity, will be considerably reduced or removed entirely. So an important message for the Minister is that there is the possibility of a useful negotiating point here which the Government would do well to keep in mind.

My Lords, as a neophyte member of the sub-committee in the Lords structure of Europe Select Committees, I found the preparation of this report very interesting. I add my congratulations to the noble Baroness, Lady Falkner, who chaired a not always compliant committee with firmness and skill. I add my thanks to our adviser Professor Iain Begg and the clerks who put together an excellent programme of witnesses.

Nevertheless, the subject matter of report created, in this member of the sub-committee at least, a sense of unreality. It is right that the sub-committee should have produced this report because the UK, although not a member of the euro, not only has an interest in the effect of the euro on the economies of our major trading partners, but is, for as long as we remain a member of the EU, directly affected by some of the proposals in the five presidents’ report.

An example is the proposal for the capital markets union, an initiative which, with the UK’s leadership in financial services, offers important potential benefits for us. One of the many reasons for being worried about our prospective departure from the EU is the prospect that this important initiative will be developed without us, as the noble Lord, Lord De Mauley, said.

The authorship of the five presidents’ report, by the presidents of the European Commission, the euro summit, the eurogroup, the ECB and the European Parliament, certainly gives it weight but not force, in my view. It is a list of aspirations, not decisions. It skirts details where it is known that some of the details of its proposals would be controversial in the lead-up to the French and German elections in 2017. These matters are left to be addressed in a White Paper but, since the stated date for that is the spring of 2017—before the elections—one may doubt how much progress it will make towards specific measures.

The five presidents’ report amounts to a road map for the survival of the euro. Whatever doubts some of us may have about the wisdom of the euro project, and whatever anxieties we may have about its economic and social consequences, there can be no question about the strength of the resolve of the members of the eurogroup. That has already been demonstrated over the last few years. As the noble Baroness, Lady Falkner, said, we asked all our witnesses whether they expected the euro to survive the strains that now exist and that lie ahead. The answer was that they expected the euro to muddle through because of the political will that has been invested in it.

Two main fault-lines run through the way ahead for the euro. One is fiscal, the other financial, and they are of course connected. Both are characterised by the tension between collective action and national sovereignty. Let me take the financial issue first. Can depositors in eurogroup banks be given reassurance that their deposits are secure, and thus prevent a flight to banks in stronger countries at times of strain? Such a flight could produce catastrophic collapses not only for the eurogroup but for the international system as a whole. One answer is that all banks in the eurogroup should build up sufficient capital to withstand any crisis. The second is that depositors should be given a guarantee of the safety of their deposits in the event of bank failure. It would have to be the Germans who gave such a guarantee in present circumstances, and understandably they are reluctant to be a party to such a guarantee, unless and until they are satisfied that other members of the eurogroup have taken steps to ensure that their banks are sufficiently capitalised to make a collapse unlikely. The proposal for the European deposit insurance scheme is therefore unlikely to make progress until that point is reached.

The second fault-line is the fiscal one. It is generally recognised that a single currency requires a single authority with effective control over fiscal policy. In the absence of that, the EU has sought to set fiscal rules for member countries but these fiscal rules have been widely ignored, not least by the principal members of the eurogroup. One reason for that is that the fiscal rules are not necessarily appropriate for all stages of the economic cycle, but their breach in major economics inevitably makes it harder to enforce them in weaker ones.

A section of the five presidents’ report is entitled “Towards Fiscal Union”, but the report is vague about what fiscal union means in practice and the Committee found that our witnesses were no clearer. The report proposes boards on various aspects of the economic convergence necessary for the successful working of a single currency: competitiveness boards in each member country to improve the operation of the real economies; a single fiscal board to review the fiscal policies of member countries; and a strengthened role for the euro group with unified external representation. These are all only advisory. We must doubt whether they will in practice amount to more than a fifth wheel on the euro-country members. The Select Committee report concludes that, in view of national autonomy, the goal of completing economic and monetary union by 2025 is unlikely to be achieved.

What are we to make of the five presidents’ report? Is it simply a programme of bureaucratic measures unlikely to achieve their stated goals, and which will consume resources and simply divert recognition from the fact that the euro is ultimately a doomed project? Is it, in other words, a road map on a road that leads over a cliff? Or is it a list of steps that, though they are unlikely to achieve their stated objectives in the short term, are none the less a necessary further stage in the progress towards greater European integration and shared identity? Only time will tell the answers to those questions but it is clear that the five presidents’ report, like the UK’s referendum, is not the end of European history but simply a further stage in its tortuous development.

My Lords, when the original five presidents’ report came out, I was aghast at the implications it contained. I remember reading it, thinking to myself that any British Government would never be able fully to commit to the various goals and targets set by the Commission, Parliament and central bank.

The mistake of many commentators in the British press was blithely to assume that such targets were not applicable to the United Kingdom. We were not in the euro, after all, nor were we in the Schengen area, nor did we ever really engage with the European Semester. However, the press were misguided, for they missed the importance of that report to our banking union. It felt odd reading the report as it was published in the heady days of May when the prospect of leaving the EU seemed risible and the referendum had not even pierced the collective imagination of this place.

However, there are a number of important points to consider in it, the first of which pertains to banking. The five presidents’ report is clear on the importance of banking for not just European monetary union but eurozone stability. Thus, the creation of the banking union, following the proposals put forward by the four presidents in 2012, is likely to be beefed up with additional powers and regulatory capabilities for all banks trading within the single market and especially those that clear euros.

It currently comprises a single supervisory mechanism in which the ECB has overall responsibility for the supervision of banking union banks and a single resolution mechanism run by a single resolution board. The upcoming negotiations will see whether the UK is able to maintain the financial passport, which effectively guarantees the rights of UK-based banks to clear euro-denominated trades and all the lucrative related deals.

In my view, there are two ways for the UK to maintain this access. The first way is to remain within the single market. This would be a Norway-style deal that would allow us full access to the single market. However, I fear this would be impossible, given the nature of restrictions on free movement and regulation that the Prime Minister wishes to make.

The second way would be more complex. The UK should stay within the banking union and then continue to trade as it does normally. The real issue with this is that the UK would then be under the auspices of the European Central Bank. This would not be in keeping with the mantra of the Brexiteers to take back control, but it may be the only way to safeguard a significant proportion of our lucrative trade with the EU. The ball will rest with the EU, but it is worth remembering this.

The eurozone is in a terribly fragile state. Greece’s problems are not yet fixed and the unresolved saga of Italian banks will be perilously hard to manage for any technocrat. If the EU disrupts this, there is likely to be significant knock-on effects for all members, including Germany, as the recent turmoil at Deutsche Bank has shown. For the single currency to survive, further significant fiscal integration will be required. There will need to be eurobonds and a Finance Minister who can raise funds in Germany and spend them in Greece.

It is in the interests of the UK to have a strong, well-functioning EU. Indeed, a prominent Brexiteer put it to me like this: we must be like Canada, a sovereign, free-trading country working efficiently with a far larger, federalised southern neighbour. Now that we are out of the way and our veto and influence will no longer be heard in Brussels, the EU can get on with the job of federalisation, which now falls to the current crop of continental politicians. I wish them well.

My Lords, it is a pleasure to speak in the gap. I congratulate the chairman of the sub-committee on her great work in the task of producing this report. I try to read all European reports, which is a daunting task because there is so many of them, but this report—I am not saying this deliberately to embarrass anyone—is one of the best I have read. It is very thorough indeed, and I agree with most of the points and recommendations made in it.

I shall be brief in enunciating a couple of thoughts which give more of an optimistic background to the growth of the euro. I acknowledge that this is referred to in the report and in some of the speeches and comments that have been made. The development of the euro has been an astonishing achievement in international terms—the noble Earl, Lord Caithness, referred to this in his remarks. It was never expected that it would be so rapid in the days when it first started. I looked up the figures. The most important statistic for measuring these matters around the world is the international daily banking payment transactions figures. The figures I looked at were from about four weeks ago and showed that the euro was responsible for about one-third of all world transactions in reserve currencies and currencies in general. The United States dollar was responsible for 40% of them. So with 33% and 40%, the euro is getting closer to the US dollar.

However, we can consider the aggregate debt figures. Donald Trump kept referring to the nightmare figure for US federal debt—not the debts of the cities or states but just the US federal debt—quoting, quite rightly, a figure of $19 trillion. The aggregate debts of all the member states of the European Union—you need not include the European budget, by the way, because it is a virtuous budget with no debt and its receipts more or less equal its payments—is of the order of $13 trillion. With 300 million people, the US has a debt of $19 trillion, while the debt of the EU, with 500 million people, is $13 trillion. Furthermore, if you look at the way in which growth is taking place and where, the enormous amount of corporate issues in the eurozone has been an astonishing phenomenon, which was not unexpected by people in the City originally. In contrast, our own currency, the pound sterling, has recently seen its eighth devaluation since the War. There were three devaluations by government action in the post-war period and five by market action, including a significant devaluation when the Brexit result was announced after the referendum.

The choice, therefore, for monetary instrument executives in government and central banks in any country is to determine the better choice between the high currency, strong currency, disciplined currency system that the deutschmark has always represented, which encourages the growth of assets and net domestic capital formation and is long term, lasts longer and is stronger and bigger in percentage terms, or the easy devaluation route, which has been the UK habit from time to time whenever there has been somewhat of a crisis. My answer is that if you have in the eurozone the deutschmark but at a low level under the euro than if it was the deutschmark on its own, that is the virtuous choice between the two. I was glad that the noble Lord, Lord Butler, sounded an optimistic note when he allowed that the eurozone might take a bit longer to develop than originally intended but that it is certainly on the way. The message for us in Britain is that we must overcome the psychological trauma and the fears and anxieties that we experienced in 1992 when we were driven out of the exchange rate mechanism in very humiliating circumstances and consider returning to the euro philosophy in the future.

I, too, am grateful for the opportunity to make a couple of quick points in the gap, and to congratulate the noble Baroness, Lady Falkner, on the report. I used to be a member of the committee in days of yore, and I note that the standard of reports has not fallen since I left—I note that with great regret and deep sadness.

I shall make two short points. One concerns the lapidary, crystalline beauty of the Government’s response to this report, about which I thought the noble Earl, Lord Caithness, was a little harsh. What it lacks in length it has in quality. It is boiled down into crystalline form and includes one excellent sentence. There are eight sentences in all, in reply to 266 paragraphs, but I single out one sentence in particular:

“Regardless of our relationship with the EU, the euro area is a key trading partner for the UK, and a stable and prosperous euro area clearly remains in the interest of all European countries”.

That sentiment needs to be more widely bruited about. It is not generally perceived in continental Europe that our policy is to leave the EU but not to leave Europe and to remain as close as possible to our former partners in the EU. It would be highly desirable and helpful to our negotiations if that were made clear. Their reading of the Birmingham speeches led them, on the whole, to take a different view. They noted that some senior members of the leave campaign argued that the euro would collapse; others argued that the euro should collapse, and that it would be in everyone’s interest if it did. It is very important that they understand that that is not the view of Her Majesty’s Government and that we genuinely see a continuing interest in the health of our largest market.

My second point is smaller, a sort of footnote. This report ends with a sad historical footnote, with the suggestion that the gains made in Mr Cameron’s renegotiation might be written into EU law at a convenient opportunity, which might be provided by action on the five presidents’ report. Alas, the fact is that, because Mr Cameron decided not to follow his Bloomberg prescription and not to propose Europe-wide reforms but simply to concentrate on concessions specific to the United Kingdom, the reforms extinguished themselves the moment when we voted to leave the European Union. It was integral to the deal that they would; they concerned only our relations with the European Union, and they no longer exist. Therefore, there is nothing from their ghost to be written into the treaties at a future treaty negotiation. That is an academic point, because there will be no treaty amendments in the year of the French and German presidential elections.

My Lords, I thank the noble Baroness, Lady Falkner, for opening this debate in such a thoughtful manner and for the work that she and other members of the committee have done to produce this report. Every speaker has rightly noted that the political context in which this report was written was very different to the one in which we now find ourselves. Therefore, the tendency might be to dismiss this report and the issues that it raises, as the Government appear to have done in their response to the committee. However, I argue that exactly because of the decision of the British people on 23 June and because of the rightful insistence of the Prime Minister that Britain will continue to be an outward-looking country, it is even more important that we reflect on the five presidents’ report and the recommendations of the Select Committee.

I shall say a little more on Brexit later, but first I address what I regard as the fundamental flaw of both the five presidents’ report and the Select Committee’s analysis. Neither report ever really challenges the euro’s sustainability; it is almost taken for granted. Because of that overoptimistic assessment, the likelihood of another future euro crisis has been discounted. Merely two paragraphs are devoted to the survival of the euro, and I put it to your Lordships that the issue of the euro’s future viability warrants more detailed examination.

I am not certain that that was within the committee’s remit—our remit was to write a report on the report in front of us, not on the future of the euro.

Well, my Lords, it is rather difficult to take that view as an outsider coming to the report for the first time, because it mentions the stability of the euro at the very beginning and then goes on to discuss a whole series of measures designed to make the euro stable. From my reading of it—and you can disagree with that—on each point that it brings up to make the euro more stable, it then analyses and notices that it is probably not going to work. If the report was not about euro stability, I apologise, but I read it as such, and as soon as I finish my speech I shall offend you less. I also note that the noble Earl, Lord Caithness, seemed to have an underlying pessimism in his speech about it—although, probably correctly, he did not address it directly. The noble Lord, Lord Giddens, also made a pessimistic speech, although he brought out the paradoxical relationship that Germany has with the euro, whereby it is absolutely crucial to its economy in pulling down the effective value of the currency without it accepting that at the end of the day some sort of wealth transfer is necessary from its overall surpluses. The noble Lord, Lord Butler, as well, who must have misread the report slightly, said that it was a road map for the survival of the euro. Indeed, it was a road map that could be leading to a cliff.

So I do not feel alone in my pessimism, and it took the noble Lord, Lord Dykes, who is ever optimistic about Europe—I wish his optimism had had more impact on 23 June—to introduce optimism. I would have been interested to hear from the impressive array of witnesses that the Select Committee spoke to about how likely they felt another euro crisis is, how much it would affect the UK banking system and, leading on from that, what resources the UK Government and Bank of England have to manage such a crisis. We have an order in front of us in about four weeks’ time that goes to the whole issue of managing crisis. I will repeatedly, at every opportunity, bring up just how fragile the banking systems are in Europe and how important that is to the United Kingdom.

Whatever the outcome of the Brexit negotiations, and whenever that may be, these are questions we cannot afford to overlook. We saw last week how sensitive markets are to any decisions relating to Brexit. Given that, I would have thought that it would be in the Government’s best interests to consider all scenarios. It is evident that there is a lack of institutional planning on the euro’s future across Europe. We must all do better and challenge that conventional thinking.

That being said, I reaffirm my thanks to the Select Committee for undertaking this investigation. I would not wish the noble Baroness and the other members of the committee to take my remarks as a reflection of my views on the entirety of the report. It was a detailed and considered analysis of the challenges that Europe and monetary union face: for example, the continued procyclicality of the European financial policy, the concerns about the effectiveness of the capital markets union in a crisis—an issue I know the committee highlighted in a number of recent reports—and the lack of detail surrounding key interpretations and accountability. Indeed, one thing that came out as an amateur reading through the report was the avoidance of seeking common definitions of important issues.

However, the issue I wish to pick over in more detail—before turning to the implications of Brexit in our interpretation of the report—is chapter 3. This sets out the immense set of challenges associated with marrying two seemingly contradictory concepts: risk reduction and risk sharing. As paragraph 99 of the report states,

“the suggestions in the Five Presidents’ Report propose a means of pooling the risks facing certain Member States, but that resistance to them reflects others’ concern that they would face an unreasonable burden of responsibility for those risks”.

It is clear that the European Union ideal would be a balance between the two—but is that possible? At present it certainly does not seem that there is a desire to share risks across the eurozone. The report notes that:

“Germany, the Netherlands and Finland, have supported more risk reduction measures before any risksharing begins”.

The report hits the nail on the head when it states that,

“large macroeconomic imbalances in the euro area will … continue to be a source of instability”,

for as long as the reluctance to transfer wealth across the European continent remains. This remains a fundamental weakness of the euro and the key reason I am less confident than the committee or the EU. It would be naive to ignore the possibility of more uncertainty surrounding the European Council.

I finish by addressing the unprecedented climate we now face. I noted at the beginning that, because of the decision of the British public to leave the European Union, it is even more important that we take heed of the warnings this report identifies and the conclusions it makes. While it could be said that European and monetary union is no longer our business because we have no long-term influence over it, it is our business because it will still influence us. I am wary about bringing up the negotiations on Brexit in fear that I get the same, stock answer from the Minister as the rest of my colleagues: “There will be no running commentary”. However, it is simply not possible to fully engage in the report today and do justice to the hard work put into producing it without considering what our future relationship with Europe will look like. For example, will we remain part of the single market? We do not have enough time today to go into the detail, but there is little doubt that single market access is strongly favoured by businesses of all sizes across the country. However, if the decision is taken to stay in the single market, how can we be sure that we have a strong voice advocating British interests?

We also have to consider that the better deal we secure for the City, the more exposed we will be to shocks. Whereas now we have the ability to direct and advise, without guarantees and safeguards Brexit could leave us powerless. I will give just one example from the report which highlights the point I am making. Commenting on the banking union, the completion of which was a key component of the five presidents’ report, Andrew Bailey, the then deputy governor of the Bank of England, noted the relationship between the banking union and the UK banking system as follows:

“Where a bank branches from a country in the euro area to the UK, as it can do under the passporting regimes in the single market, the deposit protection for the depositors in that branch in the UK comes from the home state, which is wherever it is branching from … the solvency of a national deposit protection scheme depends upon the solvency of the sovereign of that country. They are inevitably inextricably linked. We have had incidents where the solvency of the banking system of the home country is a direct product of the solvency of the sovereign, and when both of those are called into question, you then get a situation where you say, ‘Do the depositors in the UK really understand where their deposit protection is coming from?’”.

Taking passporting as a particular issue, the same problem remains: membership and influence. Can Ministers say whether the Government plan to ensure passporting rights for the UK-based banking sector? If full compliance with EU financial regulations is the price required to retain passporting rights, in accepting that price, how do the Government propose to influence the direction and detail of future regulations?

In this short debate, we have barely scratched the surface of what the report touches on or its wider implications. But from the range of questions raised, one cannot help but be seized by the sheer scale of the task ahead of us in the Brexit negotiations and our relationship with economic and monetary union within the EU.

My Lords, I begin, as others have begun, by complimenting the committee on its comprehensive analysis of the five presidents’ report. This is a fantastically complicated and politically sensitive area, and we have before us a very thorough and interesting report, to which Members have quite rightly paid tribute. As someone who has not had any interface with the EU institutions for some 20 years—since we left government in 1997—I have found it very helpful to be brought up to date and, indeed, to identify a pathway through the thicket of acronyms, which take up five pages in the glossary at the end of the report.

I hope that the report will be read in the rest of Europe as well as here. I was interested to hear the noble Baroness, Lady Falkner, say that it is on the reading list of those in Europe, because it is essentially about the future health not just of the eurozone but of the longer-term relationship between those who are in the eurozone and those who are not. As I said, it is of relevance not just to this country but to those on the other side of the channel.

Since the publication of the report and the Government’s response, we have seen a seismic shift in the relationship between the UK and the EU. The terms of trade—if I can use that expression—between the UK and the EU have changed dramatically following the vote on 23 June. We have already set to work to identify the challenges and opportunities ahead as we enter a new relationship with the EU and, indeed, with the rest of the world in a new era for the UK.

Following the outcome of the referendum, some of the issues covered in the report are now of less significance to the UK as we negotiate our new relationship with the EU. However, our exit from the European Union does not alter our commitment to its success, and the strength and stability of the eurozone is clearly at the heart of that. That was a point made during the debate by the noble Lord, Lord Kerr, and the noble Earl, Lord Caithness, among others. A sensible way of maintaining the prosperity I just referred to is to make the economic, financial and fiscal reforms required to bolster the eurozone’s ability to withstand any crisis that lies ahead. This is important not only for those countries that have adopted the euro but for other EU member states, and indeed for other European countries. That is why we have taken a keen interest in these reports. I thank the noble Baroness, Lady Falkner, for securing the debate, and all noble Lords who have contributed.

Given the outcome of the referendum, the new context for any consideration of the relationship between the euro area and non-euro-area states, and the need to provide the new Prime Minister and her Cabinet with space to develop their negotiating position for the UK’s exit from the EU, the Government judged in July that it would not be appropriate to provide a full response to the report. The Government instead responded by a letter, referred to in the debate, noting these changed circumstances. I hope the committee understand the reasons behind that approach, which I agree departs from usual procedure. I assure the committee that no discourtesy was intended, but I hope to set out some of the Government’s thinking.

It is clear that the fundamental economic challenges facing the euro area have been well known and anticipated since its very inception. One of the themes running through the report is the tension referred to in the debate between, on the one hand, the imperative of a common monetary policy for the eurozone, and on the other the often countervailing pressure from the democratic institutions within the member states, as paragraph 182, for example, shows. If one looks at the conclusions of the report, one can see that paragraph 4 on page 61 makes the same point. Implied loss of sovereignty was certainly a central factor in the UK’s decision not to join the euro, a point referred to by the noble Lord, Lord De Mauley. However, those who chose to join have certainly been working hard to introduce the institutional and policy reforms to make the euro work better. At Maastricht, for example, member states agreed on common fiscal rules through the stability and growth pact, designed to prevent member states from running unsustainable fiscal positions that could cause problems for other member states.

However, the eurozone showed quite clearly that the reforms had not gone far enough, although the noble Lord, Lord Dykes, reminded us of the currency’s achievements since its inception some time ago. While the subsequent agreement on the six-pack and two-pack measures undoubtedly strengthened the EU’s fiscal rules, and though the banking union addressed certain financial issues, none the less I think it is broadly recognised, as came through in the debate, that some of the key issues behind the eurozone’s problems still need to be addressed. So now we have the five presidents’ report, which makes an important contribution to doing so and drives forward the debate on how to improve economic governance within the euro area.

As I said a moment ago, this is of real importance to the UK, regardless of our membership of the EU. While many of the conclusions of the committee’s report referring to the relationship between the euro-ins and euro-outs in the longer term are now of less relevance to the UK, it is still quite simply in our interests that the eurozone is a strong currency area, working successfully in the wider European Union, a point made a moment ago by the noble Lord, Lord Kerr. To achieve this, the eurozone will likely need to pursue closer economic and fiscal integration. Clearly, this is fundamentally a matter for the Governments of the eurozone countries to determine themselves. We know it is not an issue for us to decide, but I will briefly highlight some of the main points in the committee’s comprehensive report, which the Government support.

First, it is most certainly the case that the fiscal policies of an individual country can have a significant spillover effect on other countries. It is for that reason that there are calls for a much greater degree of economic and fiscal co-ordination than we have at the moment. But as the report again makes clear we must be alive to the fact that, when we talk about a fiscal union, this is a broad concept indeed. I read with some interest the exchange between the committee and the then Financial Secretary to the Treasury on the subject of fiscal union. At points it read a little like an Oxford tutorial on a philosophical concept.

It again came out in the discussion that it would be wrong to overlook the wide range of views among the euro area members themselves on how best to proceed. There are important debates among the euro area member states on the precise level and type of integration that is needed to make the euro work as a source of stability of jobs and growth. It is a live and sensitive debate. The report outlines this, for example, in the section about risk reduction and risk sharing, to which a number of noble Lords have referred. Clearly it is down to the euro area to decide on the reforms to be taken and the timetable of implementation.

Secondly, we agree entirely with the committee’s assessment that the drive towards improving competitiveness in the euro area should focus on enhancing productivity. As noble Lords will know, this challenge affects all the economies in the euro area to a different degree, including the UK, and the Government are working hard to address it through our national productivity plan. I can see the case, as is suggested in the five presidents’ report, for the creation of national productivity boards to support competitiveness across the euro area and the wider European Union. They can provide an independent assessment of where further reform, including structural reform, is required.

Thirdly, we support the view of the importance of the macroeconomic imbalances procedure—the MIP—as a surveillance mechanism, particularly for the euro area. This would aim to identify potential risks early on, prevent the emergence of harmful macroeconomic imbalances and then correct any imbalances already in place. However, as the Commission’s report says, consideration of how to reform this process is as yet limited in the five presidents’ report and we need to see the appetite of member states to take this forward. Again, the issue of political will was mentioned during the debate, particularly by the noble Lord, Lord De Mauley.

Lastly, the committee is right to raise the important issue of democratic accountability, a point well made in paragraphs 222 and 223 of the report. What mechanism is chosen to achieve this will ultimately depend on the measures for economic and fiscal integration which are eventually agreed. Those reforms will, of course, primarily be down to the eurozone member states to determine for themselves. Given the emergence of political parties throughout Europe which are hostile to the EU, this is one of the biggest challenges facing the eurozone and the EU. The issue of democratic accountability raised during the debate, as I said, is one of the most critical issues and I was interested to hear what the noble Baroness, Lady Falkner, said on this subject.

Perhaps I may briefly touch on some of the points raised during the debate. If I do not deal with all of them, I shall write. The noble Earl, Lord Caithness, asked why it took so long to set up the European Fiscal Board. The gestation periods in the European Union are notoriously long and the timing of appointments was a matter for the Commission. I note that the board will be in place in time for the 2017 European semester process.

A number of noble Lords mentioned the EDIS, the EU deposit guarantee scheme. I see this as a final element in delivering an effective banking union, although the noble Lord, Lord Butler, made the point that this was a necessary rather than a sufficient condition if one is to get the kind of stability he was talking about.

On the question of CMU, which again was touched on, we welcome the Commission’s approach to the project. The UK will continue to contribute to the CMU, and the need remains for Europe’s firms to access capital-based finance in order to grow.

As the noble Lord, Lord Butler, mentioned on the question of the White Paper, the timetable has slipped a bit. The recently published 2017 work programme confirms that the proposed White Paper will now be broader in scope, setting out steps on how to reform an EU of 27 rather than just economic governance in the euro area. We will need to see how the political uncertainties inherent in the elections in 2017 are addressed. He also raised the key question about the future of the euro. As someone with an Oxford college background he left the question—which of the two options we would end up with: a flourishing currency, or going over the cliff—unanswered.

This report has come at an interesting time in our relationship with the European Union. We are very much at the start of a new chapter, and one which, at this stage, largely remains to be written. Many of the conclusions in the committee’s thorough report refer to the longer-term relationship between those EU member states that are part of the euro area, and those that are outside. As I have said, following the outcome of the referendum these issues will now be of less significance to the UK as we negotiate our new relationship with the EU. However, as we forge ahead to create a new relationship and a new role for the UK, we will also continue to support and take a keen interest in the closer economic and fiscal integration of the eurozone countries. A stable and prosperous eurozone is in the interest not just of those countries themselves, but of all their European neighbours.

We will therefore consider closely any changes that are proposed, and act to protect the UK’s interests where necessary. The noble Lord, Lord Tunnicliffe, asked about the single market and passporting. I will not irritate him and the committee by reading out the line to take on this subject. The country voted to leave the European Union, and it is the duty of the Government to make sure that we do just that, but up to the point of leaving we remain a member of the EU, with all the rights and obligations that membership entails—a point made by the noble Earl, Lord Caithness. While we remain a member of the EU we will continue to play a role representing the interests of the British people. In particular, we will ensure that we protect the UK’s interests as the process for completing Europe’s economic and monetary union continues.

My Lords, I thank all noble Lords who have spoken in this debate. I am particularly impressed by the diligence of noble Lords who were not members of the Select Committee because the report cannot be described as a light read. I also acknowledge, in particular, the interest of the noble Lords, Lord Dykes and Lord Kerr. As chair of this sub-committee, my regret is that the noble Lord, Lord Kerr, is not there to enrich our deliberations. I have heard much about the time he was there, and I am very sorry not to have experienced it.

I cannot pick up all the very valid and rich points made, but I start by thanking the Minister for his response, which is quite comprehensive. I did not bring up the Government’s response in my opening remarks because the political situation has evolved so much since our report came out a good six months ago and since the referendum of 23 June that the committee as a whole decided to let it go. We knew that circumstances had moved on. Like the noble Lord, Lord Kerr, I am extremely relieved that the Minister has reiterated the Government’s engagement with developments that will take place.

The noble Lord, Lord Giddens, highlighted the central role of the German surplus, and it is worth picking out one fact from our evidence: the German surplus in terms of the eurozone is now only €6 billion out of a total surplus of €186 billion, so the surplus with the eurozone is very small indeed. That is why I decided that I would not comment on that.

My point was about the wider significance of the German economy, and how the euro is crucial to its competitiveness. It was not a point about the eurozone itself but about what it has made possible for Germany.

I noted the comment of the noble Lord, Lord Giddens, on the missing sixth president, in terms of the number of presidents. It is also interesting that the missing sixth president is a woman, on a day that women are doing rather badly in political life generally.

I also want to pick up the point made so eloquently by the noble Lord, Lord Dykes, on the speed, in a historical perspective, with which the 19 countries have come together to embark on this endeavour. There was a tone of pessimism beyond my own pessimism, which was echoed by the noble Lord, Lord Butler, and several other noble Lords. I have no electronic gadget that is charged or that seems to work in this room, so I was trying to work out from memory when the United States became a single currency zone. If I remember correctly, it was in the early years of only the last century.

I am told it was in 1910. That is when I thought it was, but I was afraid to say so in case I was wrong. Not having a reliable electronic gadget to tell me whether I was right or wrong made me feel quite insecure, so I am very glad the noble Lord, Lord Dykes, confirmed that. If you look at the span of time from when the United States became a federation to this stage, what is happening in Europe is truly remarkable. With all of us expressing doubts, as the noble Lord, Lord Butler, did, about whether this is a road map with a road that leads over a cliff, my feeling is that it will not lead over a cliff, but a core group will move at a different, faster, speed, to the rest of the 19 countries.

I turn now to the comments by the noble Lord, Lord Tunnicliffe, who seems to be most pessimistic about the whole thing. When he asked whether the Government thought that the eurozone was liable to survive another banking crisis, he must have had in mind Deutsche Bank and the parlous situation of Monte dei Paschi di Siena. I remind him that it is not the eurozone and its regulatory structures alone that are responsible for stability in our banking sector now, because the Basel rules, which were incorporated into the eurozone, are, of course, the backdrop. We have had stress tests, and we have backstops now. Obviously these are extremely large and indebted banks, but, on the whole, the tools we now have to cope with financial crises within the eurozone are very different and much stronger than they were some years ago.

I conclude by reminding the committee of one thing that I did not touch on: the title of our report. It was deliberately chosen to echo the comments of Mario Draghi, president of the European Central Bank, in the context of the Greek financial crisis and the lack of confidence of the financial markets in the eurozone. He said that it would do whatever it takes. The United Kingdom should will it to do whatever it takes in its interest and ours. We would all be better served if the eurozone survived and thrived because the consequences of it not doing so would not be good for us either.

Motion agreed.