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House of Lords

Wednesday, 23 May 2012.

3 pm

Prayers—read by the Lord Bishop of St Edmundsbury and Ipswich.

Police: Reduction in Numbers

Question

3.05 pm

Asked by Baroness Smith of Basildon

To ask Her Majesty’s Government what assessment they have made of the impact of the reduction in the number of police officers.

The Minister of State, Home Office (Lord Henley): My Lords, what matters is front-line services—that is, how effective the police are at fighting crime. The Government are clear that the effectiveness of a police force depends not on overall numbers but on how well it deploys its resources.

Baroness Smith of Basildon: That is an interesting but slightly disappointing response from the Minister. Can I give him an example of the impact of these cuts? Twenty police stations in Essex, 28 in Hampshire and a staggering 34 in Devon and Cornwall are no longer open to the public. Across the country, we are losing police officers—500 in Sussex, 438 in south Yorkshire and more than 1,900 in the Met. I would never argue against any cuts.

Noble Lords: Oh!

Baroness Smith of Basildon: That has been the Labour Party position consistently. We are not against cuts. But even the HMIC and the Audit Commission warned of dangers of cuts in the police of more than12%. The Government are cutting around 20%. What evidence is there that cutting so much above 12% would not lead to an increase in crime victims, and what estimate can the noble Lord give of any increase or decrease in crime in the next 12 months?

Lord Henley: My Lords, I am very grateful to the noble Baroness for at last saying that she and her colleagues are not arguing against making any cuts. The noble Baroness will accept that we inherited the toughest fiscal challenge in living memory and therefore we had to make cuts—cuts that the noble Baroness’s own party would have made in the unlikely event that it had won the election. We have been clear that it is necessary to make cuts and that there is no simple link between officer numbers and crime levels. We want to make sure that we get the right people in the right place at the right time in the front line, doing the right job.

Baroness Harris of Richmond: My Lords, can my noble friend help me to define what the Home Office understands front-line policing to be?

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Lord Henley: Put very simply, I can give my noble friend the definition as provided by Her Majesty’s Inspector of Constabulary, who said that the police front line,

“comprises those who are in everyday contact with the public and directly intervene to keep people safe and enforce the law”.

We want to make sure that as many qualified certified constables are there doing that job and not doing backroom duties.

Lord Prescott: My Lords, this policy will reduce the amounts of money for the Humberside police by £30 million and hundreds of front-line police. Is the Minister aware that the number of criminal incidents and those of anti-social behaviour has been reduced considerably by the present force? In those circumstances, does he not accept the charge laid against the Home Secretary last week that a 20% cut is criminal? Is it not now true that, as with the health service, law and order is no longer safe in the hands of this Government?

Lord Henley: My Lords, my understanding is that the noble Lord is thinking of standing as police and crime commissioner for Humberside, and we wish him well in that job. He will then no doubt make the right decisions for that force. He knows, I know and the House knows that simple matters of numbers and the amounts of money spent are not the right thing. The important thing is to make sure that the right people are doing the right job at the right time, and that is what we want to make sure is happening. I am sure that that is what the noble Lord will want to make sure is happening should he manage to be elected as police and crime commissioner for Humberside.

Lord Elystan-Morgan: My Lords, the Minister referred to the function of the police in combating crime, and undoubtedly that is a major role. But would he accept that the duty of the police goes much wider than that? It is essentially to preserve the Queen’s peace, which is much wider in its function than the mere combating of crime.

Lord Henley: The noble Lord is absolutely correct, but it is still a matter of making sure that the right people are doing the right thing at the right time. That is why I am making it clear that it is not simply a question of the number of police officers we have at any time but of their deployment by the chief constable of any given constabulary.

Lord Hamilton of Epsom: My Lords, as it is in everybody’s interest that we should get value for money from our police service, is it not regrettable that the Surrey police have dropped their idea to privatise a large amount of their services?

Lord Henley: My Lords, at this stage I do not want to discuss any individual constabulary, but certainly I agree with my noble friend that we want to make sure that we get value for money. I hope that all police forces look at cheaper options for carrying out certain of their tasks which do not involve constables. As my noble friend says, that might imply that they privatise some of those activities.

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Baroness Farrington of Ribbleton: My Lords, how many neighbourhood meetings, which the police hold regularly, has the Minister attended? Will he confirm my experience that what the public want is a police officer to respond when there is a difficulty, be it domestic, burglary or whatever? Mathematically, there is inevitably a relationship between the number of police officers employed and the response time to incidents, especially on a Friday and Saturday night.

Lord Henley: I am very grateful to the noble Baroness for talking about the need for the police to respond to individual and repeated complaints that come in. I refer her to the White Paper that we issued only yesterday, which makes it clear that we see it as vital that the police respond when complaints come in from the same individuals a number of times. That is why we talked about the community trigger in that document. The noble Baroness makes a very good point.

Lord Dear: My Lords, I suspect that we can probably talk about numbers for a long time. Of course, cuts are regrettable but I think that most Members of this House appreciate why some cuts are necessary. Earlier, the Minister mentioned getting value for money. Perhaps he could reassure the House that not only is it a question of having the right people in the right place at the right time but that the amount of equipment and the quality of training are also important. That would reinforce the statement that some cuts can be more than offset by the way in which the police are deployed.

Lord Henley: I am very grateful to the noble Lord for what he has said, which is absolutely right. The way that different police forces co-operate with each other in terms of getting their equipment procurement right is a very valuable way of getting greater value for money in those matters. It is not just a question of equipment but of IT and all such matters. Only yesterday, in the Moses Room, I dealt with an order relating to the national police air service. Again, that is a service where true value for money can be obtained only by all the police authorities operating together. That is something we want to continue to pursue.

Lord Harrison: Does the noble Lord accept his unchallengeable logic that if there was one policeman left doing the right job in the right place at the right time, that would apparently satisfy the Government?

Lord Henley: The noble Lord makes a very silly point, and makes it rather badly.

Media Ownership

Question

3.13 pm

Asked By Lord Fowler

To ask Her Majesty’s Government what plans they have for reviewing the rules governing media ownership.

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Baroness Garden of Frognal: My Lords, the Government have commissioned a report from Ofcom on media ownership to be completed in June 2012. As your Lordships will be aware, the Leveson inquiry will also report on matters related to media ownership and any recommendations will be considered as part of the communications review.

Lord Fowler: Surely the Leveson inquiry has already confirmed that over the past 30 years politicians of all parties have, in the words of the Prime Minister, “cosied up” to the media proprietors to get support. Is there then not a clear conflict of interest when those same politicians become Ministers and judge on media mergers and takeovers? If that is the case, why cannot we act now and take politicians out of the whole decision-making process?

Baroness Garden of Frognal: My noble friend makes some valid points, although I should add that not all politicians have cosied up to the Murdoch empire over the years. However, in the light of recent events, it has become increasingly important that politicians are not seen to influence decisions on the media. The Secretary of State has himself agreed that this is a very important item for discussion, and it will undoubtedly be taken up when the decisions on these matters are made.

Baroness O'Neill of Bengarve: My Lords, have the Government taken any thought about what they would do if they discovered that the Murdoch-owned press was to be sold off? We already have a very high proportion of non-taxpaying non-resident owners of the British national press. Do the Government have contingency plans in mind in order that we should retain at least parts of our media that are in the control of people who have a stake in the future we share?

Baroness Garden of Frognal: The noble Baroness, I know, has raised this concern before, and it is a valid one. It will be part of the consideration. I am not trying to put off giving an answer on this. It is one of the things that will certainly be taken into account in the light of the Leveson report and the Ofcom report which is due next month. We then need to look holistically at how to cope with these issues.

Lord Roberts of Conwy: My Lords, do the Government have any plans to extend this review beyond media ownership to the BBC, and particularly to its rules on political impartiality?

Baroness Garden of Frognal: My Lords, my understanding is that this particular review is contained within the media that have been the matter of debate for so long. The BBC has its own regulations which are constantly scrutinised. For the moment the review relates mainly to the printed media but obviously it could apply to multimedia as well.

Lord Soley: Does the Minister accept that there is, in fact, already enough evidence to show that the Murdoch empire was too big and we ought to recognise that principle now; that there is a difference between a

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publicly funded broadcaster such as the BBC which is subject to all the rules and regulations that we in Parliament lay down indirectly, and a private owner; and that the old term “the press barons” has come to mean something that is deeply disturbing to us all? We need to start by saying that the Murdoch empire became too big and has to be cut down in size.

Baroness Garden of Frognal: The noble Lord makes a very clear distinction between regulation of media in public ownership and media in private ownership which is a valuable one to bear in mind. It is perhaps interesting to cast one’s mind back in history and see if we can think of any particularly philanthropic and beneficial media moguls over the years. It is not a new issue but it is very much an issue of today.

Baroness Bonham-Carter of Yarnbury: My Lords, does my noble friend agree that tackling the concentration of media ownership is important because greater plurality means greater diversity, and that this can only be good for both our journalism and our politics?

Baroness Garden of Frognal: Yes, indeed—my noble friend makes another important point on this. At the moment the media-plurality public interest test can be triggered only by a merger or takeover; it cannot really take account of organic growth. That is certainly an issue which the current reviews will look at to ensure that owners who take different forms of media into their ownership can also be under scrutiny.

Baroness Jones of Whitchurch: My Lords, can the Minister confirm when the long-promised communications Green Paper will be published? Can she clarify whether there is any truth in the media reports that Jeremy Hunt is so busy preparing for the Leveson inquiry that he has had to put the Green Paper on the back burner? If that is the case, does it not underline our view that it is time to let someone else get on with the job?

Baroness Garden of Frognal: No, I do not follow that logic at all, I am afraid. The Secretary of State is probably as busy as anything with the Olympics and all the other activities of 2012 that we have been discussing so fully in your Lordships’ Chamber. The communications review is on course. Subject to the legislative programme, the Government hope to introduce new legislation before the end of this Parliament, and of course the Leveson inquiry will influence the contents of that.

Lord Phillips of Sudbury: My noble friend asked a question of herself as to whether there were media moguls who had been extremely philanthropic. In that category, she may recognise the Scott family and the Scott Trust, which owns the Guardian and the Manchester Evening News. Is she aware of any country in the developed democratic world that is as indifferent about who owns its essential press?

Baroness Garden of Frognal: Well, one can never anticipate the questions in your Lordships’ House but I thank my noble friend for putting me right on kindly media moguls. Regarding his question, I think that

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that could be a topic of advanced research for some students in one of our splendid universities, making a comparison with other countries.

Lord Grocott: My Lords, have not successive Governments made unnecessarily heavy weather of what is actually a very simple, although very important, problem, which is, as my noble friend Lord Soley said, the huge concentration of media power in just a few people? Can I ask the noble Baroness, first, certainly to accept what the noble Lord, Lord Fowler, has recommended and, secondly, to adopt the very simple principle that one national newspaper is more than enough for anyone?

Baroness Garden of Frognal: The noble Lord of course makes very valid points. Once again, I have to draw attention to the fact that we have ongoing inquiries which will look at that, and it may well be that they will conclude that one national newspaper is enough. However, we have had some very productive cases of people owning more than one newspaper, and the question then is: how many is too many?

Asylum Seekers: Children

Question

3.20 pm

Asked by Baroness Lister of Burtersett

To ask Her Majesty’s Government what action they propose, as part of their review of the level of asylum support, to tackle severe poverty experienced by children in asylum-seeking families.

The Minister of State, Home Office (Lord Henley): My Lords, asylum support rates are currently under routine review. Careful consideration is always given to the impact of rates on families with children. Any decision to adjust rates will also reflect the temporary nature of asylum support and the fact that asylum seekers have access to fully equipped accommodation, with utility bills paid. No person who has sought protection in the United Kingdom need be destitute while their application is decided.

Baroness Lister of Burtersett: My Lords, the Children’s Society and refugee organisations have reported alarming evidence of growing destitution among asylum-seeking children, young people and families, due in part to levels of financial assistance well below those of income support. Can the Minister explain how this state of affairs is compatible with the Government’s obligations under Article 27 of the UN Convention on the Rights of the Child and Article 11 of the International Covenant on Economic, Social and Cultural Rights, both of which uphold the right to an adequate standard of living?

Lord Henley: My Lords, I am aware of the report from the Children’s Society, and my honourable friend Damian Green and officials have met the society to discuss it. The noble Baroness asked for an explanation

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of the disparity between income support levels and the rates of support that we offer asylum seekers. The simple reason is that asylum seekers get all their accommodation and utility bills paid, and therefore it is not necessary to pay their support at 100%. The noble Baroness will also be aware—I think this is important—of how this disparity occurred. Until 2008 asylum rates were set at 70% of income support, and a decision was then taken by the Government of the time—who, as the noble Baroness will be aware, happened to be a Labour Government—to break that link. Since then, the levels have been set annually each year in accordance with what has been felt to be appropriate.

Baroness Sherlock: My Lords, I think that the Minister may have slightly misheard my noble friend Lady Lister. She asked specifically whether the Government can tell us whether they are satisfied that they are meeting their human rights obligations. Perhaps I may ask the Minister a simpler question. Have the Government made any formal assessment of whether the levels of support they supply under Section 55 of the Act meet the requirements of that section? In other words, have they done an assessment and can they be satisfied that children’s health and well-being are being protected?

Lord Henley: My Lords, we are obliged to look at those matters each year and we do so. We do not believe that the levels of support should be at 100% of income support because we are paying for other things, such as rent, rates and utility bills, which amount to a very large proportion of what would otherwise be accounted for in income support. We are satisfied that the rates are right and we are continuing to look at them. I repeat that the link in rates, which was originally set at 70% of income support, was broken by the party opposite when it was in government. It can explain that if it wishes.

The Lord Bishop of St Edmundsbury and Ipswich: My Lords, many in this House will recall a significant debate about the development of children in their early years. Will part of this review help us to understand whether the rates of support for children in asylum-seeking families mean that they are indeed developing emotionally, socially and physically in a way that will prevent a lot of trouble later in life?

Lord Henley: My Lords, we will take all factors into consideration when we review those figures. We will look at them, but I think that I ought to repeat to the right reverend Prelate that obviously we hope that people will be in the position of seeking asylum for a relatively short time before a decision is made. If a decision is then made that they can stay in the country, obviously ordinary rules about benefits will apply. If they are going back to their own country, it will then be a matter for the country they go back to.

Lord Tomlinson: The noble Lord has made great play several times of the fact that the previous Government broke the link with 70% but he has not yet told us what the new link is. It is deemed to be appropriate

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when it is fixed, but can he tell us whether the current link is more than 70% or less than 70%. If it is less, what is it?

Lord Henley: My Lords, there was an informal link of 70%, which is what I was referring to. Now if one looks at the different rates of income support, we can see a whole range of different rates, varying from, I am told, something from just below 60% up to 100%. It varies according to the rate of benefit. I am more than happy to write in greater detail if the noble Lord wishes, but it is rather too complicated to give such information at the Dispatch Box in the time that is available to me.

Baroness Hamwee: My Lords, it is estimated that 120,000 children are living in the UK without legal immigration status. That estimate was made by the University of Oxford which, in a recent report, also commented that,

“because of contradictory and frequently changing rules and regulations”,

both in immigration and in the allied areas that we have been discussing, access to public service has been hugely jeopardised. These are changes that have happened over the past 20 years or so. Can the Minister comment on how our policies can be better joined up, which is something that has challenged every Government?

Lord Henley: My Lords, the Question relates just to those seeking asylum. Obviously there are other means of dealing with those who have failed to get asylum status or for those covered in other ways. For example, Section 4 support is available to those who have failed to get asylum, should they be destitute. Other than that, we look to see whether they have families here who might also be able to support them. However, I think that my noble friend’s question is wide of the Question on the Order Paper.

Lord Martin of Springburn: My Lords, the Minister mentioned decisions made by previous Governments. To his credit, David Blunkett, when he was Home Secretary, abolished vouchers which were being given to asylum-seeker families, which were undignified not only for the asylum seekers but for their children. I hope that a time when we are looking for savings we never go back to the voucher system that we had approximately 10 years ago. I can report that in many of the schools in Glasgow, the asylum-seeker children who came 10 years ago are now at university and in further education.

Lord Henley: My Lords, we accept that it is right that asylum support should be given. The important question is to decide what the rate should be. I think that the noble Lord would accept that when David Blunkett made decisions on these matters it was agreed that it should not be as high as the income support rate because asylum seekers were being looked after in other ways in terms of rent, rates and utility bills. If that is the case, obviously decisions have to be taken on what the rate should be. Obviously it should not be as high as the income support rate.

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NHS: General Practitioners

Question

3.29 pm

Asked By Lord Laming

To ask Her Majesty’s Government what steps they are taking to increase the public accessibility and range of services provided by general practitioners in the National Health Service.

The Parliamentary Under-Secretary of State, Department of Health (Earl Howe): My Lords, from April 2013 the NHS Commissioning Board will be responsible for commissioning primary medical services. As a single organisation the board will be able to ensure that a consistent approach is applied to defining and delivering accessible and high-quality GP services. Clinical commissioning groups will also actively seek to improve care delivered by general practice because of their inherent interest in enhancing the wider quality and cost-effectiveness of NHS care.

Lord Laming: My Lords, I am grateful to the Minister for that very helpful reply. He knows better than most that if the intentions of the new Health and Social Care Act are to be realised, locally based community health services will need to be transformed. Will he say a little about the process, and in particular whether the users of services—the patients—will be given an opportunity to contribute to that transformation?

Earl Howe: The noble Lord raises a central issue that is certainly a major part of the Government’s programme—to shift services in general out of acute settings, where appropriate, and into the community. We expect that clinical commissioning groups will wish to engage with health professionals from across the full range of disciplines to design care in better ways, and in particular to ensure that the shift goes on. The noble Lord mentioned patient input, which is another key responsibility of clinical commissioning groups—and a legal duty that we made sure was in the legislation.

Baroness Gardner of Parkes: Will the Minister tell me the position on homeopathic medicine? I had a lot of letters this week from patients who were concerned that they might no longer be able to benefit from it, and from GPs who practise homeopathy.

Earl Howe: My Lords, the Government have laid down no bar on homeopathic medicine. The prescribing of homeopathic remedies is very much a matter of clinical judgment and we would not wish to fetter that.

Lord Swinfen: My Lords, to what extent are general practitioners using telemedicine to cut down the time needed to obtain specialist medical advice for their patients?

Earl Howe: My Lords, this is a very exciting area. I have seen some extremely good examples of telemedicine that will deliver not only greater efficiency within the health service, sometimes enabling clinicians to diagnose conditions in patients from a remote standpoint, but also

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greater safety and effectiveness of care for patients. For example, I saw a demonstration of stroke diagnosis that can be done remotely by laptop. This is an area on which the department is focusing a lot of attention, not least through the 3millionlives initiative, through which we hope over the next few years to ensure that 3 million people benefit from telecare and telemedicine.

Baroness Jolly: My Lords, what role should practice-based patient participation groups have in moulding the services that their GPs offer?

Earl Howe: My noble friend is extremely familiar with this area. I have also come across some extremely effective practice-based patient groups that are enormously valuable, and are valued by the GPs and other primary care staff with whom they interact. It is very much part of the world of the NHS today and we wish to see it continue.

Lord Harrison: My Lords—

Baroness Wheeler: My Lords, at the conference this week we heard the growing concern of GP leaders and delegates that grass-roots GPs were being excluded from involvement in clinical commissioning groups. How will the Minister address this, and will he ensure that CCG guidance includes best practice on how their involvement can be ensured?

Earl Howe: My Lords, each GP practice will have a GP or other health professional who will represent the practice in dealing with the CCG. Other GPs may be involved in the clinical design of local services, building in some cases on existing GP involvement in practice-based commissioning. Most day-to-day commissioning activities are likely to be undertaken by staff within CCGs, but part of the rationale for this is clinical engagement and involvement. I would be very concerned to hear of instances where GPs felt that they were being shut out of the process of development that is now under way. If the noble Baroness could draw my attention to any such instances, I would be grateful.

Baroness Deech: My Lords, the Minister will know that a very large number of GPs are women. I chaired a committee on this for the Department of Health. To increase their availability, what steps is he taking to ensure that there is proper maternity leave provision for GPs, and assistance with childcare? These two issues have definitely restricted the availability of women GPs.

Earl Howe: The noble Baroness is correct: these are important issues and my department is in regular contact with the Royal College of General Practitioners, talking about those issues among others. The number of GP trainees has increased in recent years, as she will know, both men and women. The Centre for Workforce Intelligence, which is our independent advisory body on workforce planning, recommends that we should increase the number of entry-level training posts by 450 to around 3,250, phased over the next four years. I am afraid that I have not got the split of figures between men and women GPs but I shall write to her to let her know exactly what we are doing to address the areas of concern that she has raised.

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Financial Services Bill

First Reading

3.36 pm

The Bill was brought from the Commons, read a first time and ordered to be printed.

Civil Aviation Bill

First Reading

The Bill was brought from the Commons, read a first time and ordered to be printed.

Gambling Act 2005 (Amendment of Schedule 6) Order 2012

Gambling Act 2005 (Amendment of Schedule 6) Order 2012

Motion to Refer to Grand Committee

Moved By Baroness Rawlings

That the draft order be referred to a Grand Committee.

Motion agreed.

Community Right to Challenge (Fire and Rescue Authorities and Rejection of Expressions of Interest) (England) Regulations 2012

Motion to Refer to Grand Committee

Moved By Baroness Hanham

That the draft regulations be referred to a Grand Committee.

Motion agreed.

G8 and NATO Summits

Statement

3.37 pm

The Chancellor of the Duchy of Lancaster (Lord Strathclyde): My Lords, with the leave of the House, I shall now repeat a Statement on the G8 and NATO summits, which my noble friend the Prime Minister attended in America last weekend. The Statement is as follows:

“The common theme across both summits was economic stability and international security. At the G8 we reached important conclusions on dealing with our debts, growing our economies and dealing with the risks in the eurozone. Let me take each in turn.

Mr Speaker, deficit reduction and growth are not alternatives: you need the first to deliver the second. There was absolutely no debate about this: it was my view; it was Chancellor Merkel’s view; it was President Obama’s view; and it was President Hollande’s view. Indeed, France will balance its budget at a faster rate than Britain. In Britain, in two years, we have cut the deficit we inherited from the last Government by more than a quarter and our approach has been endorsed again by the IMF this week and by the OECD.

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At a time of tight budgets, a proper growth plan requires not just a credible fiscal policy which secures low interest rates but also structural reforms to make our economies more competitive, active monetary policy and innovative use of our hard-won credibility to ensure investment in long-term infrastructure. We are taking all these steps in the UK and promoting them in Europe as well, and in every area we need to do more. Prime Minister Monti and I have gathered 10 other EU leaders to call for the completion of the single market in digital and services—classical structural reforms to our economies. President Hollande is coming forward with creative proposals, such as project bonds, and, as the House knows, in recent months the ECB has helped supply liquidity to European banks.

I will be pursuing all of these elements at the informal European Council tonight and at the formal council in June, after which I will of course be making a Statement to the House.

Growing our economies also means doing everything we can to get trade moving. At the end of the G8 meeting there was a serious and substantive discussion about the potential for an EU-US trade deal. The EU and US together make up half of the world’s GDP. There is a huge amount of work to be done—and a further effort will be made at the G20 next month—but this could have a positive impact on both sides of the Atlantic.

The greatest risk facing the eurozone and indeed the world economy is the situation in Greece. The future of Greece is for the Greek people to determine. It is for them to decide what is best for their country, but we cannot afford to allow this issue to be endlessly fudged and put off. The Greek election should in effect be a straightforward choice between staying in the eurozone, with the responsibilities that entails, or taking a different path. The eurozone and Europe as a whole need to have contingency plans in place for both eventualities. These should involve strengthening banks, protecting financial systems and ensuring decisive action by European institutions to prevent contagion. I can tell the House that whatever the outcome, the Government will do whatever is necessary to protect this country and secure our economy and financial system.

Alongside the discussion on the economy, I had two further priorities for this G8: to continue the good work of the G8 on development, and to support the Arab spring and the promotion of democracy and reform. On development, the New Alliance for Food Security and Nutrition is an important initiative that aims to help 50 million people lift themselves out of poverty over 10 years. For countries to receive help, they need to show a real commitment to transparency and good governance, and in return they get substantial support to generate private sector investment in food production. This is a great combination of promoting good governance and helping Africa to feed its people, and I will be building on this with a major event on hunger during the Olympic Games in the UK.

Encouraging the private sector to create jobs is one of the best routes to sustainable, equitable growth in poorer countries, but aid still has a vital role to play. For the first time in a decade, the amount of aid given by the world’s richest countries to the world’s poorest

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countries has fallen back. Promises are being broken. This is wrong. Britain continues to honour its commitments and other nations should do likewise. In the G8, which we will be chairing next year, we will once again produce the report showing who has and who has not kept their promises.

The G8 also reached important conclusions on Libya, Iran and Syria. Specifically on Syria, there was backing for the Annan plan and for further UN measures if Assad does not change course. It was significant that the Russians agreed to this. I raised Burma and the need to support the foundations of a lasting and irreversible transition to democracy, and I will be making this a feature of our G8 next year. I am sure the whole House will look forward to welcoming Aung San Suu Kyi when she addresses Parliament next month.

Let me turn to the NATO summit. Some people write off NATO as a relic of the past. I believe it is vital to our future security. The threats NATO countries face largely come from beyond our borders: failed states, terrorism and nuclear proliferation. Because of this, it makes sense for NATO to be prepared to link up with partners around the world to act out of area, and to spend less on the weapons of past conflicts like battle tanks and more on the technology needed for tomorrow’s conflicts. All of these things were agreed at the summit. That is not to say that NATO should not take steps to defend Europe and North America; it should, and we declared at the summit that the interim ballistic missile defence capability that will protect Europe is now operational.

It was particularly good to have a special session with the partners who work with NATO around the world, and in particular the 50 countries which make up the NATO-led alliance in Afghanistan. NATO’s military commanders set out the progress in the campaign. Attacks by insurgents are down and the transition to Afghan control is on track. Over the next few weeks, we will reach the point where 75% of the population will be living in areas where Afghan forces are in the lead for security. The vital next steps are to deliver the final stages of transition by continuing to build up the Afghan national security forces and ensuring that they are properly funded for the future. Britain is pledging £70 million—$100 million—a year. But it is right that other countries should step up and contribute to the future of Afghanistan, irrespective of the role they have played so far. This summit marked a turning point in these contributions, with almost $1 billion being pledged to support the Afghan national security forces.

Britain has played a leading role in this alliance for reasons of our own national security. Three years ago some three-quarters of the most serious terrorist plots against Britain had links to Afghanistan and Pakistan. Now I am advised that that figure has fallen to about half. Our aim is an Afghanistan that is able to take care of its own security without the need for foreign troops, an Afghanistan that can prevent al-Qaeda returning and posing a threat to us and to our allies around the world.

The tremendous hard work of our courageous service men and women is making this possible. After 10 years, our service men and women will finally be coming home. I pay tribute to them. Their service and sacrifice is

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beyond measure. We remember in particular all those who have given their lives in this vital task to keep our country safe. I commend this Statement to the House”.

My Lords, that concludes the Statement.

3.46 pm

Baroness Royall of Blaisdon: My Lords, I am grateful to the Leader of the House for repeating a Statement given earlier today in the other place by the Prime Minister on the G8 and NATO meetings. We on these Benches very much welcome the announcement made today about the visit of Aung Sang Suu Kyi. Her whole life is an extraordinary and humbling record of her fight for democracy and human rights and we look forward hugely to her visit to this country, and in particular to her speaking to both Houses of Parliament next month.

I will begin with the NATO summit. On Afghanistan, we welcome the summit’s confirmation that the transition of full security responsibility from ISAF to the Afghan national security forces is set for completion by mid-2013, with the end of British combat operations by the end of 2014. Our troops have already served heroically in Afghanistan for over a decade. We owe them enormous gratitude and I certainly endorse the tribute paid in the Statement. I know that I speak for the whole House when I say that we want to see them home with their families—and home in the right way, respecting the professionalism that they have shown and the sacrifices that they have made.

To that end, can the Leader give the House a clearer indication of the timetable for the expected draw-down of British combat troops between now and 2014? Can he tell us how many British service personnel the Government expect to remain in Afghanistan after 2014 and which services they will be drawn from, and confirm that those who remain will serve under a NATO command and control structure? Can he tell the House what discussions the Government have had with President Zardari on the issue of land access across Pakistan, which is so vital for British military and ISAF supplies?

Turning to the political situation in Afghanistan, does the Leader of the House agree that honouring the sacrifices and bravery of our troops means taking the political challenge there as seriously as the military challenge? Given that the final stage of the military campaign is under way, what concrete steps will now be taken that were not already in place before Chicago to secure an inclusive political settlement within Afghanistan and between Afghanistan’s regional partners? Does the Leader agree that we need a far greater urgency in seeking this political settlement?

Women in Afghanistan have made significant progress over the past few years, in part thanks to advances in education, which we have supported. We celebrate the fact that women now make up 27% of the Afghan National Assembly—interestingly, this compares to 22% in the House of Commons. However, these courageous women are deeply concerned about what will happen to their hard-fought gains after 2014. Can the Leader assure me that the position of women will be taken into consideration in all talks relating to a political settlement?

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On Iran, can the Leader of the House confirm media reports that the issue of Iran’s nuclear capability was discussed last week by the National Security Council? Can he confirm that the Government have sought legal advice on the legality of a range of possible actions by the United Kingdom in relation to Iran’s nuclear capability? Can the Leader update the House on the talks on this issue taking place in Baghdad today?

Turning to the G8, we join with the Government in calling for an immediate end to violence to stop the continuing bloodshed in Syria. The Statement rightly mentioned the discussions that have taken place about Africa. Can the Leader say whether or not Africa will be high on the agenda when the UK takes over the chair of the G8 next year?

On the global economy, we desperately needed a summit that delivered a plan for growth but did not get it. That was because the international community is divided between those who believe that we must have a decisive shift towards growth—including President Obama, now joined by President Hollande—and those who believe that the answer lies in more of the same: that is, the German Chancellor and our Prime Minister. For two years, the Government have been telling the world that austerity alone is the answer. Now, as the recognition dawns that this is not working, the Government find themselves on the wrong side of the argument.

On the economy here at home, this Government have delivered recovery turning into recession, no growth for 18 months and over 1 million young people out of work. Even the IMF is now saying that time is running out for plan A. At the G20 last November, the Prime Minister signed a communiqué that said that,

“should global economic conditions materially worsen”,

countries will take,

“measures to support domestic demand”.

Global conditions have worsened, so what is the action for growth? Where is the decisive shift that we need across the global economy? The reality is that this Prime Minister cannot be the advocate for a plan for growth abroad when he and his Government cannot advance one at home.

Finally, on the European summit tonight, Eurobonds are important, and a stronger firewall would make a difference. However, the crucial thing is demand. Does the Leader of the House accept that without a plan for growth in Europe we cannot get a solution on deficits across Europe that is either politically or economically sustainable? The problem with the Government, the Chancellor of the Exchequer, the Prime Minister and indeed the Cabinet—of which the noble Lord the Leader of the House is a member—is that they can offer only more of the same. They cannot be part of the solution because they are part of the problem. All they can offer is more austerity—but austerity is not working in Britain and it is not working in Europe. We need jobs and growth in this country. We believe that it is time that this Government shifted their strategy and started to do things to help generate jobs and growth.

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3.52 pm

Lord Strathclyde: My Lords, I am immensely grateful to the noble Baroness for joining in the tribute to our servicemen, who do such an extraordinary job abroad, not just in Afghanistan but elsewhere as well. I join her in celebrating the visit of Aung San Suu Kyi next month. As soon as we have a date, we will of course let everybody know so that they can make their arrangements to come along and listen to her speak.

The noble Baroness asked about the timetable for the expected drawdown in Afghanistan. I confirm that there will be 9,000 troops on the ground by the end of this year. We need a clear pathway for drawdown based on conditions on the ground. I am sure that is well understood. We are responsible for three districts. I and other Ministers will keep the House updated as to how that timetable progresses, as we will with the situation post-2014, where we have agreed, rightly, to provide assistance with an officer training college in Afghanistan, along with Australia and New Zealand. That will be the baseline of our commitment, although we will of course listen to other requests. There will therefore be a NATO training mission as opposed to the NATO combat mission currently.

The noble Baroness also asked about the relationship with Pakistan and, in particular, the control of ground lines across Pakistan. We believe it is essential that these are reopened and are confident that progress will be made. We would like it to be more rapid and will have to wait and see until we get a settlement.

The noble Baroness made much of something that I think is equally important—the political settlement in Afghanistan. If there has been a military surge, we also need a political surge. There is no military solution for Afghanistan, but there may be a political one. As the House knows, we have made an offer to the Taliban to lay down their weapons and to join the peace process within Afghanistan. The political process has not progressed as quickly as we would like, hence the need properly to train up Afghanistan’s own security forces and police, making the country safe to hand over. However, we are fully committed to a political process. I can also confirm that the position of women in Afghanistan is extremely important, not just to this Government but to many other Governments who play their part in Afghanistan. We must hope and believe that the work and progress that have been achieved over the course of the past few years will hold—in perpetuity, I would hope—in Afghanistan after the troops have left.

I cannot update the noble Baroness any further on the situation in Baghdad and the discussions with Iran, but I can confirm that in the G8 next year the position of Africa will play a major part. This Government are immensely proud of their record of support for developing and underdeveloped nations and our commitment to expenditure and the work that has been done. We will call upon other countries to make similar commitments.

As for the United Kingdom economy, I thought the noble Baroness was unnecessarily churlish today, in a week where we have seen that inflation has fallen, that unemployment fell last month and that, for the first time since 1976, we exported more motor cars than we

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imported. We are reducing the deficit and we have historically low interest rates. That seems to be a good record. Of course, I say that with no ounce of complacency. We all know that we are living in extremely difficult and complicated economic times. There is a good deal of uncertainty in the world, particularly within Europe. The noble Baroness said that we had no plan except for austerity, but you have only to look at what the French President said, not that recently but last year. He said that the national debt is the “enemy” of the Left and of France. We agree with that. Much more recently, on 6 May, he said:

“The means cannot be extra public spending, since we want to rein it in”.

Austerity and growth are not mutually exclusive but you cannot have one without the other. That is the most important thing. It would be much better if we agreed about these matters across the Benches in these extremely difficult economic times. However, we have the flexibility of our own currency and the Bank of England, and I very much hope that that will lead to growth in the long term.

Lord Jopling: My Lords, will the Leader of the House tell us whether there were any discussions about the lamentable stand-off that exists between NATO and the European Union, which prevents a great deal of necessary co-operation? This stand-off has been going on for far too long because of the difficulties between Greece and Turkey over Cyprus. Was anything discussed to try and settle this long-standing issue?

Lord Strathclyde: My Lords, we will continue to work hard to resolve these issues, not just within NATO but within the EU. My noble friend has tremendous knowledge and expertise on this subject, and he is right to draw it to the House’s attention. I cannot promise that there will be an early solution, but he can rest assured that we will continue to work on it.

Lord Anderson of Swansea: My Lords, was there any evidence at the Chicago NATO summit of any repositioning of the US defence priority away from Europe and in the direction of Asia? Was there evidence also of the frustration of the United States at the lack of response within Europe to the defence needs? In particular, what relevance does that frustration have for the UK-French treaty? Do the Government think that that should be strengthened in any way? There has been some success on the nuclear side but apparently the co-operation on the non-nuclear side is fairly becalmed at the moment. What discussions are we having with the French about improving the degree of co-operation, even integration, of our defence forces?

Lord Strathclyde: My Lords, I do not think that the summit in Chicago was about a revolution within NATO or about a comprehensive reassessment of the role of the United States within NATO or indeed about the relationship between the United Kingdom and France. Obviously all these matters are reviewed and kept very firmly in discussion. The Prime Minister argued, and the summit agreed, that NATO should not lower its ambitions or look inwards to the core responsibility of collective defence but rather should look outwards, reassert NATO’s relevance and make

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sure it is ready and capable of tackling the threats that may lie outside its territories. Indeed, President Obama and the Prime Minister argued that NATO should consider a process not dissimilar to the strategic reviews recently carried out in Britain and the US.

As far as France is concerned, where co-operation has been extremely close over the past few years, there is a recognition that there is no need to change that but, with a new President, discussions will continue. I see no reason why we should not continue that close co-operation between the United Kingdom and France.

Lord Dholakia: My Lords, I thank the noble Lord for this broad Statement. It seems that the most exciting part of the G8 event was Chelsea’s victory over Bayern Munich and the resulting hug from Chancellor Merkel.

On growth and jobs, what is the EU/US trade deal in relation to our co-operation on this matter? Would it apply to all business sectors? How will it be taken forward? Secondly, on Iran, there is considerable speculation about action including, as the Leader of the Opposition said, obtaining a legal opinion on this matter. Can the Leader of the House assure us that before any action is taken in relation to Iran there will be full consultation with the British Parliament?

Lord Strathclyde: My Lords, I am always in favour of as much consultation as possible on these matters. One important but less well recognised aspect of the G8 was the discussion between the EU and the United States about a long-term trade arrangement. We are all disappointed that the Doha trade round is going nowhere, and I think there is general recognition that we need more energy on trade around the international system to push back the rising tide of protectionism. We want to see further trade liberalisation where groups of countries forge ahead with ambitious deals of their own. Therefore, we are keen to launch negotiations with other countries, including Japan, and are preparing to negotiate with the US. It is a tough challenge, and I cannot offer my noble friend a road map of exactly how it is going to take place, but given that together the EU and the USA make up a third of global trade and nearly half the world’s GDP, the prize is extremely substantial and worth while.

Lord Browne of Ladyton: My Lords, in the Statement that we have just heard, the noble Lord the Leader of the House reported that the Secretary-General of NATO took advantage of the NATO summit to declare that the interim ballistic missile defence capability was operational. Is the noble Lord able to explain in more detail what that phrase means and, much more importantly, how much that capability cost, what the next stage of development will cost, how much the United Kingdom has committed to paying for the next stage of development and whether it will come out of the core defence budget? Perhaps when he answers this question he may tell your Lordships’ House when we may get an opportunity to debate ballistic missile defence.

Lord Strathclyde: My Lords, it is not often that I get asked a question that I am comprehensively unable to answer, but this is one of those times. I am afraid

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that I cannot go beyond the sentence that I read out in the Statement. Perhaps I could reply to the noble Lord by letter. More importantly, he suggested that there should be a debate. There are opportunities for debate over the next few weeks and the missile defence system may well be one of those areas that the usual channels should discuss whether or not to bring forward.

Lord Stirrup: My Lords, the noble Lord the Leader of the House mentioned the cost and funding of the future Afghan national security forces and described the NATO summit as something of a watershed in this regard, with $1 billion in pledges. Perhaps a better metric might be the comparison between, on the one hand, the sum total of Afghan GDP and foreign aid and, on the other, the expected cost of running the future Afghan state, since after the end of the NATO mission it will be as much a matter of politics and development within Afghanistan as it is a matter for us. Can the Minister tell us where we stand on that metric?

Lord Strathclyde: My Lords, all I can say is that our support for Afghanistan, particularly in terms of development through DfID, will continue according to needs and the criteria that are set. What was important about the Chicago summit was a recognition that, post-2014-15, there would still need to be substantial financial support for the security forces of Afghanistan, hence the setting up of this fund to raise over $1 billion. The United Kingdom has fully pledged its support for this and has committed to spending £100 million a year, at least for three years post-2014.

Lord King of Bridgwater: I join my noble friend in his tribute to the great courage of our Armed Forces. Is it not true to say that, in a very real way, the objective that they were sent there to achieve has been achieved, which was to make sure that Afghanistan did not become a future base for al-Qaeda? In that connection, I challenge something in the Statement, which has linked together the most serious terrorist plots that are supposed to have had links with Afghanistan and Pakistan. I wonder how recent any links have been with Afghanistan. I am sure that there is a real problem about Pakistan and a real problem about the Yemen, but I personally believe that the Afghan Government and the ethnic groups that support them, as well as the Taliban, will all stand together in being absolutely determined that al-Qaeda will never get back into Afghanistan because of the problems and disasters that it caused.

Perhaps I could add one further point. The noble Baroness and the noble Lord, Lord Dholakia, raised the issue of Iran. The noble Lord, Lord Dholakia, encouraged full parliamentary consultation before any action is taken. That tends not to be possible in the real world, so let me start the consultation now by saying that I think that the maximum restraint should be exercised in an extremely difficult situation and that every possible muscle of the British Government should try to ensure that there is no ill advised and extremely dangerous military action that could only make a difficult situation worse.

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Lord Strathclyde: My Lords, my noble friend, with all his knowledge and experience in these matters, has taken the opportunity to share his views with your Lordships’ House. That is immensely useful as part of the process of discussion. On Afghanistan, I do not think that where my noble friend stands and where my right honourable friend the Prime Minister stands are all that different. With him, we agree that the initial objective in Afghanistan has been reached and that the most important objective, which is that it should no longer become a home for terrorism, has been largely achieved. But my noble friend is right, and we entirely agree with him, that there are other countries, most notably Pakistan, with which the United Kingdom has very close links, where there are still major issues to resolve. That is not just in Pakistan; it is also in other countries.

Lord Barnett: The noble Lord spoke briefly in the Statement about the eurozone problems and Greece in particular. He said that that was a matter for the Greek people, but is it not the case that the Greek people—according to opinion polls, anyway—seem inclined to stay in the eurozone while not wanting the austerity programme? Can the noble Lord tell us what the situation would be then?

Lord Strathclyde: My Lords, the noble Lord is asking me to look into a crystal ball to give us the results of the Greek elections and to try to guess what I think is almost unguessable at the moment as to the likely reaction of the markets of the rest of the eurozone countries and the impact not just within the EU but on the rest of the world and particularly the United Kingdom. The Prime Minister has laid out—and I suspect that the noble Lord, beneath his occasional expostulations, agrees with this—that it is in Britain’s best interests for the eurozone to sort out its problems. The eurozone is at a crossroads. It either has to make up or it is looking at a potential break-up. Europe should have a committed, stable and successful eurozone with an effective firewall; it should be well capitalised with well regulated banks and there should be a system of fiscal burden sharing and supportive monetary policy across the eurozone. If we do not get that, we are in uncharted territory. I will not be the first Minister from the Dispatch Box to advise either the Greeks or the eurozone what they should do next.

Lord Forsyth of Drumlean: My Lords, even if we get what my noble friend suggests, which is some kind of common fiscal and government operation across the eurozone, is it not evident now that Greece is not the malady but simply a symptom of the malady and that, if we persist in this belief that you can tie economies that have different competitiveness together, we will see the problem re-emerge? Should we not therefore be encouraging people to acknowledge in the G8 and elsewhere that the euro has been a disastrous experiment, which is impoverishing people throughout Europe? We must look to a return to currencies in Europe and acknowledge the damage that has been done rather than encouraging further integration, which will simply lead to more grief, more poverty and more discontent throughout the European Union.

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Lord Strathclyde: I take no view on what the eurozone should do. I accept that it is at a crossroads and there are two different views as to what could and should happen next. The House should be in no doubt that, whatever path is chosen, the Government are prepared to do whatever is necessary to protect this country and to secure our economy and financial system.

Lord Soley: On the problems in the eurozone, can the Leader of the House tell us what the Prime Minister was really thinking when he said that he would protect Britain’s interest? He went on to do what I can remember no other Prime Minister doing, which was to attack our major allies in Europe by lecturing and hectoring them and using phrases like,

“kicking the can down the road”,

which is more reminiscent of a debate in a university than it is of true statesmanship. Right now we need statesmanship.

Lord Strathclyde: My Lords, I do not follow that at all. There is no sense of my right honourable friend the Prime Minister lecturing those in the eurozone, although he might well be tempted to do so given that the United Kingdom economy, with our independent bank and independent currency, has been better able to weather the storm.

Lord Eden of Winton: My Lords, in one of his answers the Leader of the House seemed to give hope that the attitude of Pakistan is becoming altogether more positive. Can he give any further information about that, as it would be helpful to our efforts in Afghanistan if that were the case? Secondly, was any consideration given to the need to preserve the independence and integrity of the Lebanon?

Lord Strathclyde: My Lords, I cannot confirm that there was a discussion on Lebanon itself but there certainly was a discussion about Syria, which is not far away. I do not wish to be flippant, even though that may have sounded so. What happens in Syria is integral to what is happening in Lebanon. The G8 called on President Assad to follow the Annan proposals, which he has conspicuously failed to do until now.

On Pakistan, it is a fervent wish of anybody who has studied this subject that relations between the United States, the rest of NATO and Pakistan should be better than they currently are. It is crucial to recover the supply routes and ground lines. A lot of work is ongoing at the moment. The negative aspect is that a final agreement was not reached over the past few days. More positively, there is a great deal of hope that one will be reached in the weeks and months ahead.

Lord Craig of Radley: My Lords, before he was elected, the President of France talked about withdrawing French troops from Afghanistan earlier than previously intended. Following the NATO meeting, are the Government satisfied that this earlier rush for the door —if I may call it that—that was being threatened by France and other countries will not now take place?

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Lord Strathclyde: My Lords, I thank the noble and gallant Lord for his question about France. It is true that the French President has called for the drawdown of French combat troops by the end of this year, and that is to happen. However, the Government and the rest of NATO are entirely confident that we can make up the shortfall and that there will be no detriment to the mission.

Lord Higgins: My Lords, if the Prime Minister is to protect Britain’s interests in the eurozone crisis, is it not essential that he should express a view on the situation, particularly with regard to the need for adequate contingency plans? Should the summit not have recognised that Greece has both a debt crisis and an exchange rate crisis? However much one delays and prays for time by bailing out to solve the debt crisis, it does not solve the exchange rate crisis. That is absolutely essential if we are to find a long-term solution, since it is clearly inconceivable that Greece will become competitive at the present exchange rate. Therefore, should we not be unashamed to express views on this issue, even though we may at times seem critical of what happened at the summit, to ensure that proper contingency plans are made?

Lord Strathclyde: My Lords, whatever happens, the UK Government are going ahead with their contingency plans to deal with the full horizon of eventualities. However, what my noble friend said is in direct contrast to what the noble Lord, Lord Soley, just said. I lean rather more towards my noble friend Lord Higgins. Decisiveness and strong action by all Governments are required, whether that is strong action to deal with the deficit or dealing with the banks to calm the markets. Greece faces an extraordinary crisis, which is shared by the rest of the eurozone countries. It is important that there should be clarity so that, as my right honourable friend the Prime Minister has said, we do not allow the can to be kicked further down the road with an inconclusive outcome.

European Union (Approval of Treaty Amendment Decision) Bill [HL]

European Union (Approval of Treaty Amendment Decision) Bill [HL]

Second Reading

4.19 pm

Moved By Lord Howell of Guildford

That the Bill be read a second time.

The Minister of State, Foreign and Commonwealth Office (Lord Howell of Guildford): My Lords, in bringing this Bill before the House, I am very much aware that I do so at a time when the spotlight is on the eurozone. As the Prime Minister said last week, it is vital for Britain’s interests that the eurozone resolves its problems. I do not underestimate those problems. On Monday, a number of noble Lords gave their very expert views on the broader issues during the debate on the report of the European Union Committee on the euro area crisis. It was a very interesting debate.

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However, this Bill is simple and straightforward. It provides solely for the parliamentary approval of an amendment to the Treaty on the Functioning of the European Union. The proposed amendment makes explicit the ability of eurozone countries to set up a financial assistance mechanism. In other words, it confirms that the eurozone can support fellow eurozone members in financial difficulty.

Although the United Kingdom is not in the eurozone, the treaty amendment is nevertheless important to us. The eurozone is in the process of setting up the European stability mechanism—or ESM. I apologise for these endless initials. The ESM will play an important role as eurozone countries work towards stability, which obviously we hope they will do. Eurozone stability is important for our own stability. When the Prime Minister agreed to the treaty amendment, he also secured an important commitment. The UK will not be liable through the European Union budget for any future eurozone bailouts once the European stability mechanism comes into force. In effect, that is another way of saying that the European financial stability mechanism will be closed down and there will be no further disbursements from that source.

Baroness Quin: The Minister has stressed, as have other Ministers, that we are not liable to contribute to any future bailouts. Will he none the less confirm that if we judge that it is in our economic interest to do so, as we did in the case of Ireland for example, bilateral help can be available?

Lord Howell of Guildford: There is complete freedom outside the treaties to take any decisions we want. I will come in more detail to what I have just said in reference to the EFSM, and during the afternoon we can discuss what other mechanisms of support for economies, whether in Europe or the eurozone or not, are justified, but that is the position in relation to what we are discussing today.

It is not the first time that this treaty amendment has been considered by Parliament. Before the Prime Minister signed the treaty last March, a Motion in favour of signature was passed by both Houses, with no opposition in your Lordships’ House. At the time I committed to bringing the decision before Parliament again. Thus we are applying the more rigorous requirements for parliamentary control over European Union decision-making, as we committed to do in the European Union Act 2011. Parliamentary approval will enable the UK to complete its ratification process for this treaty amendment.

I recognise that 14 months is a long time in eurozone terms, so it may help your Lordships if I recap how the European Council came to decide to amend the treaty. In May 2010, in response to the first Greek crisis, two emergency instruments were established to respond to the financial crises. The first is the European financial stability facility. This is an emergency facility established intergovernmentally by euro area member states. It is used to provide loans to euro area member states in difficulty. The UK is not—I repeat, not—a member of the EFSF and has no exposure to the financial assistance provided by it.

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The second is the European financial stabilisation mechanism, which I have already mentioned, which we inherited from the previous Government. Under this mechanism, the Council can agree, by qualified majority, to the Commission providing assistance using money raised on the financial markets, backed by the European Union budget. It therefore created a contingent liability for the United Kingdom, which is a very important point.

As uncertainty continued in financial markets, the European Council agreed in December 2010 to amend Article 136 of the Treaty of the Functioning of the European Union. The amendment confirms that member states of the eurozone may establish a permanent stability mechanism. This mechanism—the European stability mechanism, or ESM—which I have already mentioned, will provide a permanent means for dealing with events that pose a risk to the financial stability of the euro area as a whole.

Having gained Parliament’s approval in March 2011, the Prime Minister returned to Brussels to agree to the decision at the European Council. The decision must now be ratified by all 27 members before the amendment to Article 136 can come into force. The target date for entry into force, as set out in the European Council decision, is 1 January 2013.

As I have already mentioned, the Minister for Europe and I committed to further consideration of the decision under the terms of the EU Act 2011 when it came into force. Under the provisions of Section 5 of the Act, the Foreign Secretary laid a Statement before Parliament in October 2011. He indicated that in his opinion a referendum is not required to give parliamentary approval. The proposed amendment to Article 136 applies only to member states whose currency is the euro. Consequently it does not transfer further competence or power to the European Union from the United Kingdom. The statement was open to judicial review, but in the intervening eight months no one has sought to challenge it in the courts.

To comply fully with the requirements of the EU Act, I am now presenting this Bill to the House. Should Parliament grant its approval, the Government intend to ratify the European Council decision by the end of this year.

Now I turn briefly to the European stability mechanism itself. The ESM is a stability mechanism funded by eurozone countries to provide financial assistance to eurozone countries. The intention is that it will replace both the EFSM and EFSF. It is being set up under an intergovernmental treaty that was signed on 2 February by eurozone member states. It must now be ratified by all 17 member states and is expected to come into force in July 2012.

The treaty amendment does not establish the ESM. The UK, of course, will not ratify the ESM as we have not signed up to the intergovernmental agreement, and the amendment certainly does not commit the UK to contribute to any bailout fund. However, let me make it clear what the decision does. The treaty amendment that we are asking Parliament to approve will put beyond doubt the ability of eurozone countries to set up a financial assistance mechanism. It does this by adding a third paragraph to Article 136, which states

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that eurozone member states may establish a financial stability mechanism to assist other eurozone member states in financial difficulties. Article 136 applies solely to member states whose currency is the euro. Therefore, the provisions of Article 136 do not apply to the UK.

Alongside the agreement to enshrine the legal basis for the mechanism in the EU treaty, the Prime Minister secured an important agreement. Once the ESM is established, Article 122(2), on which basis the EFSM was established, should no longer be used for such purposes. Our liability for future euro area financial assistance programmes under the EU budget will be removed. This is strongly in the UK’s national interest.

The intensification of the crisis has led eurozone member states to agree to bring forward the introduction of the ESM to July 2012. When they announced this decision in January, we carefully considered the implications that it would have on our handling of the treaty amendment. Would it need to be ratified sooner, and was it still needed at all? We decided to proceed as planned, as it has always been the Government’s opinion that without the agreement to amend the treaty there would be no European stability mechanism. The clear message from eurozone member states is that they still need this treaty amendment.

That brings me back to the central point of why this Bill is important.

Lord Davies of Stamford: I am most grateful to the Minister for giving way. He said that it was the intention that the ESM should now enter into force next month. Indeed, we support the urgency of that, as I understand it. Therefore, why are we taking so long to ratify this? If we really support the initiative and recognise its urgency, why cannot we ratify it as soon as Parliament has approved this Bill?

Lord Wallace of Saltaire: My Lords, I do not think that it has been the usual practice of this House to interrupt Ministers in the middle of their opening speeches, when they are also winding up and when the interrupter has his chance to take part in the debate afterwards. These are questions that the Minister can answer in his wind-up speech.

Lord Howell of Guildford: As I have sought to explain, the ESM treaty is an intergovernmental affair between eurozone members, and they are going ahead with it—and they want to go ahead with it—in July. Nevertheless, the individual eurozone members have said that they would want the comfort of cover via an amendment to the European Union treaties, and we are pressing ahead with that as best we can in our own time. The two things are not ultimately dependent; it is just that the changes that we are proposing give comfort, support, reassurance and legal reassurance to the eurozone members so that they can go ahead. Therefore, those who say, “You are not doing anything to play your part in contributing to orderly developments in the eurozone”, are wrong. We are playing our part in doing so, although there are considerable benefits for the UK in making this move, which I have already outlined.

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This brings me back to why this Bill is important. It represents Parliament giving a simple yes or no to amending part of the TFEU that does not actually apply to the UK at all. However, as I have made clear, by giving approval to this decision the UK avoids liability for future eurozone bailouts under the EU budget and gives the eurozone the legal clarity—this may reinforce the point I have just made—that it wants to back the European stability mechanism. We also uphold the commitment made by both the Prime Minister and the Chancellor to help the eurozone to get itself out of a crisis. Whichever way the situation goes, that must be to the advantage of us all.

If we were to refuse to agree the decision, the impact on our trading partners in the eurozone would not be positive, to put it mildly. We are under no illusion that the ESM alone will resolve the eurozone crisis, but, as the Prime Minister said last week, an effective firewall is part of the solution. It is safe to assume that markets would not view favourably any uncertainty about the eurozone’s ability to establish a permanent support mechanism. That is just what would arise if we failed to ratify this decision.

As the Prime Minister, my right honourable friend the Foreign Secretary and the Chancellor have repeatedly made clear, a stable Europe is directly in the UK’s interests. That must be so. We rely on the eurozone states for over 40% of our trade. London is Europe’s international financial centre. Stable progress in the eurozone states is vital to stable progress in the United Kingdom.

Therefore, agreeing to this treaty amendment is in our best interests. As I have said, it means that the UK will not be exposed to any future programmes of financial assistance for the eurozone through the EU budget, specifically the European financial stability mechanism—that will be closed—and it helps our neighbours in the eurozone in their search for financial stability in the currency area. Your Lordships have already agreed that the Prime Minister could sign this treaty amendment, as he has done. I hope that we can now take the necessary steps to allow us to ratify it. I beg to move.

4.32 pm

Lord Radice: My Lords, I thank the Minister for his lucid explanation of the Bill. I certainly support the Bill as far as it goes and in so far as it confirms the eurozone member states’ ability to set up the European stability mechanism. However, as our debate on Monday on the Select Committee report reminded us, much more will be required to solve the euro area crisis than this small Bill. Nevertheless, I welcome the Bill and the Second Reading debate as it affords the House another opportunity to discuss a very fast moving situation.

We debated this issue on 16 February and on 21 May. When we debated it on 16 February, it was a time of relative calm following a number of positive initiatives, including the agreement of the European stability mechanism, the fiscal compact and, above all, the European Central Bank’s enhanced scheme for bank lending in the form of three-year, low-interest loans,

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which the noble Lord, Lord Lamont, described in that debate as a game-changer. I agree with him, although I think that the scheme just bought time. If it had not occurred, the situation would have been disastrous, but it certainly bought time.

Since then, we have had the inconclusive result of the first Greek election, problems with some Spanish banks, renewed turbulence in the markets and increased borrowing costs for some periphery countries. All this has encouraged some critics, particularly political commentators in the media, not only to say, “I told you so”, but to envisage—indeed, sometimes almost to welcome—the break-up of the eurozone. They are wrong to do that. I accept that the credit crunch and the subsequent recession revealed shortcomings in the euro model. Monetary union was strong, but did not have effective fiscal co-ordination. The convergence that had been promised between the strong economies and the less strong has not occurred, or has not occurred fast enough, and the ECB is not a strong enough central bank. All the same, it is dangerous to talk about or even welcome the break-up of the eurozone.

Only the other day, Robert Chote of the Office of Budget Responsibility said about a possible Greek exit:

“The concern is that you end up with an outcome in the eurozone that creates the same sort of structural difficulties in the financial system and in the economy that we saw in the past recession”.

He added that the UK could be plunged into recession for two years, with rising unemployment and a growing debt burden. If you think longer term, and if the eurozone broke up, there would probably be a series of competitive devaluations and all the impact that that might have on living standards. You very likely would have the spread of protectionism and barriers to trade—trade that has been such a strong part of the European Union and has been so beneficial, not only to the countries of the continent but to the UK. It could lead, like in the 1930s, to the rise of extreme nationalism because it has often accompanied the growth of protectionism. A break-up of the eurozone would therefore be a grave setback and a disaster to the continent of Europe and the UK.

My position is that we need a reform of the monetary union because that could provide a framework for recovery. Speaking on Monday, the Commercial Secretary to the Treasury said in an excellent speech that three things were required: first, the resolution to the eurozone crisis and the uncertainty about Greece; secondly, ring-fencing other vulnerable euro member states; and, thirdly, recapitalising European banks. He could, and perhaps should, have added the need to achieve a balance between, on the one hand, austerity and cutting deficits, and, on the other, growth. That is clearly a major problem, and is the issue being stressed by the director-general of the IMF, Christine Lagarde. Mario Monti, the Prime Minister of Italy, has also made that clear, and we now have President Francois Hollande, who was recently elected on a growth ticket.

Tonight, European leaders meet for an informal summit which the new French President will attend. We are told that they are likely to discuss a number of

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issues, including the idea of common Eurobonds, which, if introduced, would reduce borrowing costs for vulnerable states. That idea is, of course, opposed by Germany, precisely because it would raise German borrowing costs. There is also the idea of boosting the European stability mechanism, which we are debating, by borrowing from the ECB. That would be a game-changer and is something that I hope is pursued.

There are three other issues concerned directly with growth: first, European project bonds to raise money for infrastructure funds; secondly, extra funds from the European Investment Bank; and, thirdly, speeding up the application of European development funds. Those three measures are all very useful, but represent quite a small aid to growth. The most important assistance to growth in the eurozone in the near future would be continued expansion of the German economy, which grew over the past two years by 2% per annum, and in the past quarter by 0.5%. On this point, I think that the support of the German Finance Minister for an increase in wages for German workers—and it is fairly extraordinary for that to happen—is welcome news. Growth in German domestic demand would not only help Germany but suck in goods from other European countries, including the UK, to the benefit of their economies. I think we can all agree—although I may not carry the noble Lord, Lord Forsyth, with me—that it is essential that within the next few weeks European leaders come up, first, with a credible rescue plan and then with a longer-term growth plan to revive the euro area.

In conclusion—I am aware that a number of noble Lords want to speak—what about the UK, Europe’s third-largest economy? What is our role? Of course, as the Government are always quick to point out, and as the Minister rightly pointed out, we are not in the eurozone and therefore, the argument runs, it is up to its members to sort out their own mess. That would be fine if more than 40% of our trade were not with the eurozone. What happens in the eurozone is extremely important to us, as both the Prime Minister and the Governor of the Bank of England have made clear. Indeed, they have used it as an excuse—although that word is perhaps unfair—for the fact that we do not have growth in our own economy.

A noble Lord: It is an excuse.

Lord Radice: All right, if the noble Lord insists. As I said, what happens in the eurozone has a major impact on our economy and therefore it is very much in the UK’s interest for the eurozone to secure financial stability.

So what has Britain—this important power with the third-largest economy—done? Last December, we opted out of the fiscal pact. We all said what we thought about that in the February debate and I shall not go over it again, but it hardly made us more influential in the debate. Otherwise, we have confined ourselves to offering advice—too often, I am afraid to say, in quite strident and slightly contemptuous tones. The trouble is that, whatever we say, nobody in the eurozone appears to be listening. I happened to be in France the day after the election of President Hollande

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and he set out all the things that he was going to do, such as going to Germany, meeting the European leaders, going to the United States to meet President Obama and so on, and there was not one mention of the United Kingdom. I thought, “Good heavens. We’ve come to the point where we’re not even mentioned in relation to the euro”. It is not that they are saying nasty things about us; it is just that we are not in the game at all. That is a great pity because I think that sometimes our advice has been very sensible and ought to have been heard but has not been.

The question is: what do we do to increase our influence? My answer is that we have to try to sound as though we want to help, although quite often we do not sound like that. I have two practical suggestions, for what they are worth. In the debate last Monday, noble Lords remarked that the Prime Minister argues for growth on the continent while preaching the virtues of austerity at home. As Christine Lagarde said yesterday, we ourselves need to do more to boost our economy. She may say that she shivered but she then went on to say all sorts of things that she thought the Chancellor ought to be, but is not, doing.

First, if our economy started to grow, not only would this be good news for us but it would also be good news for the whole eurozone, because we are, after all, the third-largest economy. Secondly, instead of standing entirely aloof from the European stability mechanism and indeed boasting about it, which is keeping the Eurosceptic wing of the Tory party happy, I think that there is a case for a purely voluntary financial contribution from the UK as a symbol of our solidarity with our European partners when they are in difficulties. We are a member of the European Union and are affected by what happens. We could show some sympathy but we do not. If we made more of a contribution, we might find ourselves becoming more influential. In this eurozone crisis, which affects not only the member states but the interests of the UK, we are no more than bystanders—we have no real role. If we are prepared to make some positive moves—I do not know exactly what, but I have suggested some—we might play a more active role which I believe would be good not only for Britain but for Europe.

4.46 pm

Baroness Falkner of Margravine: My Lords, it is a pleasure in this Second Reading debate to follow the noble Lord, Lord Radice, whose expertise and passion about the European Union remains undiminished. I agree with a lot of what he said; I particularly agree with his comments regarding Germany’s need to incorporate and use its fiscal levers to bring about a greater boost to growth within Germany. I am glad to see in that context that the noble Lord, Lord Sassoon, is in his place, and I hope that he will recall that I exhorted him to do precisely that last Thursday. Of course, in the intervening period the Prime Minister has come out saying many of those things himself, so it is a very good move. We are not preaching to the Germans; we are exhorting them to do what I think has considerable support in Germany itself, as the noble Lord, Lord Radice, mentioned, in terms of the Finance Minister.

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I shall keep my remarks on the Bill very brief. With the informal European Union summit ahead of us tonight and the eurozone crisis continuing to unfold, there is little to be said about the Bill before us. It rightly allows for the eurozone countries to move forward to establish a permanent facility for those states that are in the eurozone. One could almost say that it has little to do with the UK, but also that it has everything to do with the UK. It is clearly and essentially in the United Kingdom’s national interest to have the European stability mechanism established as soon as possible, to enable the eurozone sovereign debt crisis to be dealt with through the creation of a permanent mechanism. We may quibble about whether the extent of capitalisation is sufficient—at 5% of eurozone GDP it would appear not, but it is certainly a step in the right direction. It also creates the possibility that should further capitalisation be required, other methods of raising finance, such as Eurobonds if politically acceptable to those countries—it is only about those countries in the eurozone—could be an option.

Let me come to the politics of the Bill here. Anyone who believes that there is some easy fix to the eurozone crisis through letting Greece default is mistaken. While our banking sector may not be significantly exposed to Greek banks which might fail, it is undoubtedly exposed to French, Spanish, and Italian banks which might be affected by their own exposures to Greek debt and the contagion effect thereon. We have, in effect, a banking sector that is still extremely fragile some four years after the financial crisis of 2008. However, it is not only the banking sector that would be affected. Half our trade is with the eurozone and a further 10% within the European Union as a whole. The eurozone’s GDP is projected to be in deficit in 2012—marginally so, to the tune of 0.1%, but nevertheless, the drag caused by fiscal consolidation or austerity measures is very palpable.

Unemployment is predicted to rise to 11% but it is significantly higher especially among the young—all factors that impact on domestic consumption within those countries. It is British business which will take a hit as the southern countries slide deeper into recession; it is young British workers who will face stiffer competition from well educated European nationals who will come here to seek work in the northern countries; and it is the British consumers who will face a drop in confidence as those in countries around them are deeply affected by the crisis. As a trading nation dependent on a large service industry, we cannot insulate ourselves from our neighbours in the European Union.

The Bill is a first step to stabilising the crisis, but the European stability mechanism must be accompanied by a pro-growth strategy through faster adjustment. If this results in greater fiscal and political integration, we should accept that that is the right way forward for those countries that have chosen to be in the eurozone. Thankfully, we are not in that position, but that does not mean that we do not have to engage with the developments as they inevitably happen. It will be a rocky path to get to a resolution of the crisis, but for now we on these Benches welcome this enabling measure.

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4.51 pm

Lord Williamson of Horton: My Lords, as is always my practice when I see “European Union” on the Order Paper, I declare my interest. I spent the greater part of my career in United Kingdom public service on European affairs, and a smaller part of my career in the European Commission, and I have pensions from my work.

Before coming briefly to the purpose of the Bill—namely, the approval of an EU decision to amend Article 136 of the Treaty on the Functioning of the European Union, which applies only to member states whose currency is the euro—I will stress that the decision of the member states of the euro area to replace the two temporary decisions taken to confront the sovereign debt crisis with a permanent European stability mechanism is a good one. Strangely, the text of the decision does not appear in the Bill. However, indefatigable readers of government documents—of whom I am one—will find it in paragraph 7 of the Explanatory Notes, which carries the exact text of the decision about which we are talking.

The mechanism is extremely important and has been widely discussed. However, it will not be sufficient to recreate a stable situation in the euro area, as we can see not only from the situation of Greece but from the sovereign bond markets and, most recently, from the new and correct pressure for a growth pact or specific measures directed to growth. The emphasis on growth is right. However, to avoid overdosing the euro with tales of woe it is perhaps worth recalling that in 2011, 12 member states in the euro area had a growth rate equal to or higher than that of the UK, and that the eurozone grew twice as fast as the UK.

Now the situation is serious. The noble Lord, Lord Giddens, used the same phrase in two debates. He said that we were on the edge of a precipice. It was an important reminder, but of course we do not have to fall over a precipice when we are on the edge. That is what we and the euro area must think more about. We must see whether the existence, in some form or within very strict rules, of a lender of last resort, which understandably is ruled out by Germany at present, will ultimately be possible. That might be bolstered by measures such as the project bonds, which are a good idea.

We discussed these matters a number of times. We discussed them in relation to the gracious Speech, and recently in relation to the European Union Committee report. We are now discussing them again, and the Government are replying through three Ministers: the noble Lords, Lord Sassoon and Lord Astor of Hever, and the noble Lord who is replying today. Therefore, we have made a small contribution to joined-up government.

I turn now to the Bill. In a recent debate the noble Lord, Lord Phillips of Sudbury, reminded us that we put on the statute book 12,000 to 15,000 pages of law per year, while removing only 2,000 to 3,000 pages. It is therefore a real pleasure to have before us today a commendably short Bill of two clauses totalling 164 words, which makes it a great deal easier to deal with. I find it quite easy to deal with the Bill.

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The European Union Act, which was passed in the previous Session, established the important requirement that any transfer of powers or competencies to the European Union would require a referendum of the British people, but a small number of tightly defined exceptions were included in the Act. One was the approval of the accession of a new member state. That does not apply to this Bill but later, according to the gracious Speech, we expect to be asked to approve the accession of Croatia. What does apply to this Bill is that where a decision does not apply to the United Kingdom, its approval can be confirmed by the Minister and no referendum is required.

The proposed amendment of Article 136 of the Treaty on the Functioning of the European Union with regard to the stability mechanism for member states whose currency is the euro clearly meets this criterion as we are, happily, not in the euro. The Bill complies exactly with Section 4(4)(b) of the European Union Act which we passed in the previous Session. For all those reasons, I can agree to the Bill.

4.56 pm

The Lord Bishop of Guildford: My Lords, I am very appreciative of the Minister’s introduction to this debate. For your Lordships’ pleasure, I hope, I think that I can assure you that I will be mercifully brief, because last Thursday I spoke to the treaty amendment Bill in relation to the gracious Speech.

I speak in strong support of the Bill. Although it will entail no automatic bailout from the United Kingdom in relation to the euro crisis, we cannot be—and indeed we are not—indifferent to it. We are implicated in it, as a number of speakers have already said, including the noble Lord, Lord Radice. It gives the euro states a kind of release mechanism to enable them to implement a desperately needed, effective mechanism for economic stability.

I speak as one of the co-presidents of the European Council of Churches. I find myself in regular discussions with a counterpart in Germany who rejoices in the wonderful title of Oberkirchenrätin—note the feminine German ending—and also with a Greek Orthodox Metropolitan who lives in Paris and looks after the Orthodox community in France. The German, Greek and British church leaders meeting in France are neither unaware of nor indifferent to the financial turbulence and instability throughout the continent of Europe and its personal human consequences. The last time we met I heard of the soup kitchens being established by the Greek Orthodox Church in Athens, to which thousands of people come daily.

This is a technical Bill but behind it are human faces. We think of Greece but, if we go over the precipice, we might have to think of Spain or Italy and, indeed, ourselves. So I strongly support the Bill. I repeat what I said on Thursday. We are involved in the rest of Europe not only economically but, of course, geographically; and we are certainly involved culturally and in terms of religion and faith communities as well.

I crave the indulgence of the House and the Minister because I may need to leave before the end of the debate as I am due to institute a new woman priest in Normandy. As the Minister will know, Normandy is just north of the Hog’s Back in Surrey.

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5 pm

Lord Lamont of Lerwick: My Lords, this is our second debate in three days on the eurozone, but that is hardly disproportionate considering the huge potential threat of the crisis in the eurozone to the world economy. The measure before us is already well known and publicised and, indeed, is already priced into the markets, so anyone who thinks that what is being debated today will make a crucial difference to the eurozone crisis is under an illusion. It may be a necessary first step, but it is already priced into the markets.

The Minister gave a clear and lucid explanation of the Bill, and suggested that we should welcome the new permanent bailout mechanism not just for economic reasons, but because it replaces the EFSM, the first bailout mechanism, to which Britain had to contribute. I hope he will forgive me if I probe this argument a little further to find out how completely copper-bottomed it is. In practical terms, the new mechanism makes the EFSM obsolete; if you have the ESM, you do not need the EFSM. But as far as I can see, there is no legal assurance or guarantee that the EFSM has actually been abolished. The document, 407/2010, which is the instrument that set up the EFSM, is not repealed. There is no amendment in this treaty amendment to Article 122 under which the EFSM was set up. The treaty amendment does not say, as one might have expected, that there should not be financial assistance to countries that have over-spent or over-borrowed under Article 122, the original provision that obliged Britain to contribute. If this seems a little suspicious, paranoid or swivel-eyed to the Minister, perhaps he will forgive me simply because the use of Article 122 to set up the temporary bailout mechanism was, in many people’s opinion—including that of Madame Lagarde—an illegal use of it. The Government have always been coy about its legality, but given that she said that, we are entitled to be sceptical and to ask for further assurances.

Perhaps I may remind the Minister that the Council decision under Article 136 which set up the ESM says that member states whose economies are not in the eurozone “may decide to participate”. There is a little bit of daylight there but it is far from clear that we will definitely not be involved in this. I might also mention that there are other bailout provisions in the treaties which apply to non-eurozone countries. Articles 352 and 143 provide for bailouts to non-eurozone countries. They cover us, we have no opt-out and, of course, decisions are made by qualified majority vote.

I should like to ask the Minister one or two questions about the ESM itself. First, according to a document dating from 2011 on the European Central Bank website, the ESM could be used to buy sovereign bonds on the primary markets. I imagine that that is not now correct and that it has been overtaken. However, I should be grateful for the Minister’s assurance on that point. Secondly, again according to the ECB website, the debt of the ESM will be classified as the debt of EU institutions. It will not be classified as government debt and will not count as government borrowing, even though the ESM is going to issue securities and borrow from the markets, and even

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though those bonds are themselves guaranteed by the Governments of the eurozone. Can the Minister confirm that that is the case?

Thirdly, how confident is the Minister that the ESM will be able to maintain an AAA rating? The intention is to issue securities that are AAA rated, but because of recent downgrades, the ESM is now backed by only one large economy that has a universal AAA rating. This idea that a lot of Governments that have sub-AAA ratings can have their securities all wrapped up together and that those can then be described as AAA securities has a rather uncomfortable similarity to certain things that happened in 2007 and 2008, through the CDOs that led directly to the financial crisis.

Fourthly, perhaps I may ask the Minister about the capital of the ESM. According to the ECB website, this is put initially at €80 billion, rising to a callable amount of €620 billion. Again, this capital is being provided by countries in proportion to their GDP and populations. That presumably is something like 18% for Italy and 12% for Spain. But can Italy actually afford to make its contribution? Will the contribution be made in cash or in terms of guarantees? The whole mechanism seems rather like a lot of not very sound economies getting together to try to guarantee their own finances. Of course, at some future date Italy might very easily be in a position where it could not meet the capital requirement that was asked of it.

I have one or two comments to make about the current situation in the eurozone. I listened very carefully to the noble Lord, Lord Radice, who always speaks very eloquently and with a wealth of experience. He made the slightly familiar point that we were not being listened to—that was an implied criticism—and that we had lost influence. Perhaps listening is not the strong point of the eurozone Governments. They were not exactly prepared to listen when they were warned in the first place that this was an unworkable system that would lead to great financial problems. The noble Lord suggested that we must be constructive, get in there and be more influential. I am afraid that is a policy that has been tried and has failed many times before. I see no point in participating in, or at least reinforcing, a wrong policy merely in the interests of some chimera called influence.

Lord Clinton-Davis: What conclusion is the noble Lord coming to? Should we withdraw entirely from the euro?

Lord Lamont of Lerwick: Well, we are not in the euro, so that is not a point that leaves me in great difficulty.

The euro has been a disastrous experiment. It has brought nothing but grief and problems. What has been the achievement of the euro? What have been its consequences? Twenty-one neo-fascists in the Greek Parliament is one consequence. The system that was promoted in order to produce harmony has produced nothing but acrimony and xenophobia. The European Union used to boast that its great achievement was to underpin democracy in post-dictatorship countries such as Portugal, Spain and Greece, yet we have seen the political life of Greece being torn up by the demands being made of it by the eurozone.

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The main force that is keeping the monetary union together is simply the fear of the consequences of it falling apart. As well as looking at the costs and dangers of it breaking up, it is only rational also to look at the costs of keeping it together, because they can continue to mount, even to the point of threatening the stability of the German economy. Germany has contributed something like €200 billion so far to shoring up the euro. It may find that it has to do more and more of this as the years go by.

The Bundesbank is now worried about what are called the TARGET2 balances. These are the claims that the Bundesbank has on the central banks of the peripheral countries, because the central banks have had to step in to fill the gap where the interbank, international, commercial market has withdrawn. The claims on the Bundesbank’s balance sheet in respect of the peripheral countries now come to something in excess of €500 billion, which is causing a lot of anxiety in Germany.

It seems clear that if Greece leaves the euro—whatever we think about that, there seems to be a distinct stench of inevitability about it—a €500 billion firewall is not going to be sufficient to stop contagion. It may be enough to deal with one country but will not be enough to deal with several. I noticed—and the noble Lord, Lord Radice, picked up on it—that Finance Ministers, including Mr Schauble, have been saying that Greece’s departure might be difficult but not fatal. We must hope that they are right but it would not be the first time if they are proved wrong.

I certainly feel a degree of sympathy with Spain and the situation it finds itself in. Spain ran a perfectly responsible policy before the crisis and actually spends, as a proportion of GDP, somewhat less than we do as a country. The historic yield it pays on its debt is something like 3.6%, but today in the markets it is having to pay something like 6%. Spain cannot remain solvent if interest rates remain at these levels, as they are likely to do for some time to come. I say “likely to” because it seems very probable that the rates on sovereign debt will never return, in the near future, to the level they were at before the crisis began.

At the moment, we have a complete stand-off between Greece and Germany. Greece is, I think, overplaying its hand by threatening to bring the whole pack of cards tumbling down. At the same time, German public opinion is, I believe, hardening. Mr Hollande, for all that was said, will find this very difficult to move, as German public opinion is extremely resistant to further bailouts. The one thing that some people think could be done to ease the situation—the noble Lord, Lord Radice, referred to this—would be if Germany had higher inflation. To my astonishment, Mr Schauble referred to this. It may be the one thing that would help the eurozone but the one thing that would turn German public opinion absolutely against the euro is if it had to put up with inflation of 4% or 5%. That would be anathema to the German people. For all Mr Schauble said, I do not believe that is the course that Germany is going to follow.

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The question is: which will blink first—Germany or Greece? My guess is that neither is going to blink, and therefore we will have a chaotic, unplanned exit from the euro. Greece and its politicians say they do not want to leave the euro, but clearly they need a third bailout and are very likely to default again. Greece may not want to leave, but what it is demanding is not on the table and is not available. If the second election produces the same result as the first, the eurozone has to grasp the nettle and show the door to Greece.

The truth about this mess and this situation we are in is that every option is unpalatable. Breaking up the euro carries dangers, while soldiering on risks the danger of hugely escalating costs. However, the worst option of all is the third one, which is that the crisis has no end and we have this sapping away of confidence. People talk about the need for a growth package, but growth depends above all on confidence, and as long as this crisis goes on, we will not get confidence and we will not get growth. It is time that the eurozone made some hard choices. Winston Churchill once said, “We have to face reality or reality will face us”. It is time for the eurozone to decide to face reality, however hard that may be.

5.15 pm

Lord Giddens: My Lords, it is an honour to follow the noble Lord, Lord Lamont. I am not sure how much I agree with the main body of his speech but I certainly agree with what he said at the beginning. This is a crisis of gigantic proportions. Enough of precipices, I would say, but this is the greatest social and economic crisis we have lived through and it is unfolding against the backdrop of a world economic recession which is still far from unresolved. As I argued in a speech that I gave a couple of days ago, this adds to the difficulties we are confronting in Europe, which do not simply come from within Europe itself.

I support this Bill, but, I have to say, perforce. That is because this one-page scrap of green paper is Britain’s, and especially the Government’s, ambivalence towards the European Union made manifest. I argue that it represents a position that is now disintegrating and for which there is no long-term future. I would like to sketch in the reasons why.

In a document that the Government sent round after the report that we debated on the euro crisis, they say:

“The decision not to be part of the Fiscal Treaty does not reduce our influence and has not damaged our reputation in Europe”.

That statement is absurd. The noble Lord, Lord Lamont, seemed to say that it does not matter who listens to you. It surely does because if people stop listening to you, you have no influence in the circles that you want to influence.

Lord Radice: To act as the mouthpiece of the noble Lord, Lord Lamont, as I understood it in his criticism of me, he does not think that influence is important.

Lord Giddens: That is what I was saying. Influence is very important because if you do not have it, how are you going to affect the course of developments in

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Europe? I have been around Europe talking to a range of European figures recently, as my noble friend has been as well, and it is true that virtually nobody listens to what the Prime Minister says. This is important. Britain is now marginal in Europe because we lecture Europe from the sidelines, and I have heard so much of that in the debates over the past few days. The Prime Minister wants what all other European leaders want: the stabilising of the eurozone. Yet he will have no influence over that process.

One can say that the EU is at a crossroads—except that, as has been observed, the EU is always at a crossroads. This time, however, the forks of the crossroad are far further apart than ever before. On the one side, there is the possibility of the disintegration of the eurozone. Having looked at the scenarios in detail, I cannot see any which would not be catastrophic if this course were followed. Some have argued for what has been called a velvet divorce, whereby the eurozone could be progressively uncoupled. However, as in real life, there are very few velvet divorces and I could not see a scenario in which that could be achieved. Whatever one thinks of the eurozone—I have certainly had mixed feelings about the euro from the beginning—its disintegration would be catastrophic for Europe as a whole, and certainly for the UK as well.

There is only one other path. I think the path that Europe will certainly try to follow is a move towards federalism, and in a fairly strong sense of that term. Fiscal union is being forced on the eurozone, more or less, by the markets but it would have to go along with the ECB becoming a lender of last resort. We have a good understanding of the financial apparatus that it would presume, although we do not know whether there is enough money around to back it. These moves in turn would have to be accompanied by greater political co-ordination.

From these there follows the need for a process of democratisation and a reshaping of the institutions and procedures of the EU. Therefore, in thinking of the future of the EU and in charting, as I have been doing over the past three months, the enormous number of debates going on outside this country in the member states of the European Union, we are not talking about evolution. We are talking about a sort of revolution. We are talking about the end of the Monnet method of slow accumulation. We are talking about big transitions over a short period towards a more integrated eurozone that would, in the end, drag in most of the rest of the European Union. Jörg Asmussen, who is a German board member at the ECB and, incidentally, someone who has had a lot of influence over Angela Merkel, yesterday called for just such a programme. I think he gave his speech in anticipation of the meeting today. He argued that eurozone members should join in a,

“banking union, fiscal union and political union”.

Should the eurozone survive in a reasonably robust condition—and like the Government, I cannot see anything else that one can hope for—several other countries, such as Poland, have declared their intention to join it. At that point, British policy would surely have to change. There could be no more ambivalence, no more sitting on the fence and no more wanting the advantages of the EU without the commitments.

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Should, God forbid, the EU descend into chaos, the UK will be affected just as much as any country that has formally signed up to the euro. If a more federal Europe emerges, and I think that is the most likely outcome, Britain will no longer have the option of semi-detached membership. I think this also applies to the single market. I do not think that the idea that Britain can concentrate on the single market when the rest of Europe has moved to a much more tightly co-ordinated economy can work.

At that point, a momentous decision will have to be made: in or out. In my contribution to the debate on the Queen’s Speech I argued that at such a point there should be a referendum. I think this is the first time ever that there have been voices from all three major parties arguing for the desirability of a referendum. We would have to have a referendum if Europe has moved down a federal path and become a different entity far away from the position it was in when the UK entered it.

If a referendum is held, the results might surprise some of our more vociferous political commentators. I quote from a recent, very interesting study that I commend to anyone interested in opinion in Europe. It is by Michael Bruter and Sarah Harrison and is called How European Do You Feel? but it goes well beyond that. It is the largest study ever carried out across the 27 EU member countries about attitudes towards the European Union, reform and the future. The reason it is so important is that its methodology is far more sophisticated than the surveys that you read in the press from day to day. If you read the results of surveys in the papers of what people think of the European Union, they are sometimes based on a sample of only 200 or 300 people. They do not give you an in-depth understanding. This study uses a range of sophisticated techniques and goes up to 2012. I think noble Lords will agree that the results are quite counterintuitive. They show that European identity is strong across all 27 EU countries, with a majority in this country endorsing the statements about Europe in the study. Far from declining, in 2012, it is getting stronger. It has gone up from just under six out of 10 in their measures to over seven out of 10.

In the United Kingdom, there are some very interesting findings in the survey. Opinion is polarised, but intriguingly so. Younger people are far more positive about the European Union than the older generation. There is, the authors say, a new, younger generation of very committed Europeans in this country. In their conclusion, they say that in the UK there are,

“two publics, one fiercely non-European, and”—

this is important—

“one of the largest proportion of highly ‘Europeanised’ people in the whole of Europe”.

I would welcome the Minister’s comments on any aspects of what I have said, particularly on what plans the Government are making to respond to what is likely to be a quite different Europe from the one in which we have existed in such an ambivalent way until now.

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5.26 pm

Lord Lawson of Blaby: My Lords, it is always a great pleasure to follow the noble Lord, Lord Giddens, as I have done on a number of occasions both inside and outside this House. I will refer to one of the important things he said when I reach the logical point in my own contribution. However, I do say now that he should not confuse being European with accepting everything that the European Union does—or, indeed, the existence of the European Union itself. As many noble Lords on both sides of the House know, my main home is in France. I certainly consider myself a European, but, as noble Lords will discover, I will be critical of what is being put before us today.

Lord Giddens: If the noble Lord checks the survey, he will find that it contained a whole range of questions, such as whether respondents agreed with EU policy on Schengen—and more than 90% do. It contained a whole set of questions on actual EU policies, not just on EU identity.

Lord Lawson of Blaby: If 90% of people say that they agree with some particular European convention, that is probably a lie. I doubt whether 90% of people know about any European convention.

To come back to the Bill that we are debating, a few days ago an item appeared on the Foreign Office website which read:

“Foreign Office Minister introduces EU Treaty Amendment Bill to the House of Lords … Foreign Office Minister Lord Howell said … ‘A stable and healthy eurozone is important for the UK’s long-term growth and prosperity. This treaty change is firmly in the UK’s national interest’”.

That is the basis for the Bill before us. I have the greatest affection for my noble friend Lord Howell. Indeed, I can hardly blame him for saying that, because it is government policy. But it is, of course, complete nonsense. It is not a stable and healthy eurozone that is important for the UK’s long-term growth and prosperity; it is a stable and healthy European economy which is important for the UK’s long-term growth and prosperity. So long as the eurozone staggers on, we will not have a healthy European economy. That is the problem that we face.

Greece has been mentioned. It has a number of special economic difficulties and also a special political difficulty. Greece is, and always has been, a “phavlocracy”. I owe this term, which is little used, to when I was editor of the Spectator, 45 years ago. I recruited an excellent Athens correspondent, because the colonels had just come in, and he explained that “phavlocracy”—a word the Greeks use—meant “government by corruption”. The high economic cost of that is an additional problem but we are not debating a Greek problem. This is a fundamental problem of the eurozone project. It is not the tired old argument of growth versus austerity, as if somehow you can say, “Let’s have some growth, what a good idea”. It is the particular problem of the eurozone that we need to address.

The European Monetary Union was fundamentally flawed right from the start. It was predictable and indeed it was predicted. I think I was the first Minister to point this out in a speech at Chatham House in

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January 1989. I analysed the eurozone project and I concluded in these terms. It is a long quotation but it is important to put on record what I said at the time, well before the eurozone came into being. It was a few days before publication of the Delors report on which European monetary union was based, but we all knew what would be in it. As Chancellor of the Exchequer at that time, I concluded in these words:

“Nor would individual countries be able to retain responsibility for fiscal policy. With a single European monetary policy there would need to be central control over the size of budget deficits and, particularly, over their financing. New European institutions would be required, to determine overall Community fiscal policy and agree the distribution of deficits between individual Member States.

The setting up of a European Central Bank or a new European institution to determine Community fiscal policies go to the very heart of nationhood. What organisation would really be the government? It is clear that Economic and Monetary Union implies nothing less than European Government—albeit a federal one—and political union: the United States of Europe. That is simply not on the agenda now, nor will it be for the foreseeable future”.

That is what I said as Chancellor of the Exchequer in January 1989. I elaborated on a number of further occasions, both in speeches and in articles, during the interim period until 1999 when it came into being. Then I gave up. I was seeking to persuade our European friends and partners not to make the huge mistake of going down this hugely damaging route. Once they had done it, I had failed and I gave up.

I was not the only one. My friend Hans Tietmeyer, when he was president of the Bundesbank in 1996, in the more measured terms that central bank governors are inclined to speak, said:

“Monetary union means a restriction on national sovereignty, on national manoeuvring room and the ability to go it alone. Participants lose the instrument of exchange rate adjustment … In a monetary union, countries have to tackle and solve their economic problems and challenges in a similar way and with similar speed. If the countries decide fundamentally different answers, then great problems will arise”.

He could say that again.

So why did this happen when everybody who was informed knew that this was fundamentally flawed? It happened because this was not economic at all; it was entirely political. There were of course some innocent worshippers at the church of Europe who believed that anything that was more Europe must ipso facto be a good thing. But most of the promoters were more sophisticated. Their objective, and they were clear about it, was full-blooded political union—a United States of Europe. That was the view of Jacques Delors and most of those who supported him. They thought that since monetary union and political union have to go together, if you want political union then you have the monetary union and it will inevitably lead to the political union which is the objective. That is a fundamental misreading of history; it is the wrong way around.

The example of Germany in the 19th century is interesting. German unification came in three stages. First, there was the zollverein, the customs union. Then Bismarck and Prussia forged a political union from blood and iron. It was only after they had political union that they had monetary union. That was the sequence. Doing it the other way around simply does not work.

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One reason why you must have political union is that, as we all know, there must be transfers from the German taxpayers to the poor Greeks or whoever. However, you cannot make that work—nor does it have credibility—if it is on a sporadic and discretionary basis. You must have a single system of taxation, as there is in any currency union, such as the United Kingdom, which takes more money from the wealthier sections of the economy; and a single system of spending so that there is more spending on, say, social security in the poorer parts of the economy. The transfers become automatic and there is no discretion.

You must also have control of deficits. This simply means that you must have a single Finance Minister at the head of a single finance ministry in a single Government. That is the only way that it can work. Even then, it would, in my judgment, be economically harmful to the European Union. To use the economists’ jargon, which the noble Lord, Lord Giddens, enjoys so much, it would be suboptimal.

There is a great literature about what is known as an optimum currency area. No one quite knows what an optimum currency area is. We all know that you do not get individual cities with their own currency but, equally, you do not have a world currency. That is too big and the first is too small. Where is it right? I think all economists would agree, as would the noble Lord, Lord Giddens—even though he is not an economist, he follows these things—that an area as big as the European Union, with its great size and diversity, is not an optimum currency area. In particular, to help the transfers and so on to work you need wage flexibility, which the United States has but Europe does not. Indeed, it is anathema to the European social model, which is opposed to wage flexibility.

Above all, you need labour mobility. That is what happens in the United States. If one area is not doing too well, people move to another area. However, what do you have in Europe? For cultural and linguistic reasons, when there is 25% unemployment in Spain—indeed, 50% youth unemployment—but little more than 5% in Germany, the Spanish do not move to Germany. They riot in Madrid and call on their Government to do something to help them.

Lord Davies of Stamford: Is the noble Lord aware of Mundell, the author of the seminal article that defined the concept of the optimum currency area? Indeed, he invented it. That article produced the key criteria that define an optimum currency area and an equation that became part of standard theory and won a Nobel prize for Mundell. Is the noble Lord aware that Mundell is on the record as saying that he regarded the eurozone as meeting the criteria for an optimum currency area?

Lord Lawson of Blaby: Yes, I am aware of that. I am also aware that he subsequently changed his mind on that point.

Those who promoted European monetary union were guilty of great arrogance and unbelievable irresponsibility. They were arrogant because the only way to have political union was with the consent of the peoples of Europe. The people of this country, the people of

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France, where I live nowadays, and the people of most, if not all, of the countries of Europe—Luxembourg may be an exception—do not wish to give up national self-government. They do not want to be part of a full-blown European political union. It is a sad thing but I am afraid that for all its, no doubt, high-minded motives, the European movement has been marked by the most appalling contempt for democracy throughout the years that I can remember. The irresponsibility is that political leaders must have known that if this gamble did not come off and they were not able to achieve the political union, the disaster which we see all around us was bound to ensue. That seems to me to be the most irresponsible thing that political leaders could ever have done.

What now? In my judgment, the least bad course—I say “least bad” rather than best because I accept that it is not good—is the orderly dissolution of the eurozone, which will begin with the departure of Greece in only a matter of time, and it will not be a long time. This dissolution is already happening before our eyes, even if the politicians do not accept it. Holders of euro deposits in Greek banks are taking them out at a rate of knots and they will do so increasingly. After that, I am afraid that the same thing will happen as regards euro deposits in the banks of other countries considered to be likely candidates for withdrawal—whether it be the Spanish or Portuguese banks, or wherever.

I agree that the dissolution of the eurozone will be far from painless. There will be a whole lot more sovereign defaults. We have already had getting on for an 80% write down of Greek government debt. That will be bigger. There will be other sovereign defaults. There will be banks in difficulty.

Lord Wallace of Saltaire: My Lords—

Lord Lawson of Blaby: I will come to a conclusion soon. There will be banks which may have to be saved. But we have handled something like this before. It may not have been on this scale but it was quite substantial. The first international economic issue I had to grapple with as Chancellor of the Exchequer in the mid-1980s was the Latin American sovereign debt crisis, which had many factors in common with this and the IMF played an important part.

In conclusion, there is a heavy cost in the course that I am suggesting but the EMU is a Doomsday machine. If the question is, “How do we keep it going?”, that beggars belief. We have got to get on with it. I do not believe that this will happen, but if there is a serious move to a political union, we can no longer be part of the European Union. That is not the form of European Union which the people of this country are prepared to accept, or, I believe, one which the politicians will accept. It is a very serious matter. The noble Lord, Lord Owen, referred to this in a very thoughtful contribution in the Queen’s Speech debate. He said that in those circumstances, we would have to leave the European Union, although with a referendum first. I do not believe that we will go to a political union. Therefore, the conclusion is that the European monetary union is doomed and the treaty change we are discussing today is supremely irrelevant.

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5.43 pm

Lord Empey: My Lords, the nature of the debate today has drawn to our attention the great significance and importance of the issues we are discussing. While the Bill’s Second Reading was never going to be confined to the minutiae of the legislation, it was always going to be a platform for discussion on the wider issues, and so it has turned out.

Never in my lifetime have I heard so many people express real fear and concern as I have with the turn of events in the euro area. People are genuinely afraid—as we have seen particularly in Greece, but in other countries as well—that the resources which they have built up over years will be taken away. As I understand it, that was exactly the circumstances that pertained in pre-Nazi Germany when people saw their lifetime’s effort dissolve before their eyes as they had to wheel their savings to the bus in suitcases and handcarts simply to pay the fare. If this is so fanciful, how is it that we have 21 Nazis elected to the Greek Parliament? These people are not disguising what they are. The very badges that they wear, their symbols, although not the same colour as that used by the National Socialists in Germany, are basically the same thing. They are unashamed. These people are succeeding in a nation that was occupied by the Germans in the Second World War. So if alarm bells are not sounding somewhere in those circumstances, when will they?

On many previous occasions we could convincingly say that it was nothing to do with us. We cannot say that today. Whatever happens in euroland will impact directly on every household in this country. Nobody will escape if the financial situation deteriorates in the eurozone. Our exporters will be hurt. Perhaps above all, there is a feeling of lingering doubt about the real state of many financial institutions on mainland Europe.

I understand the rationale for the Bill, given the events of May 2010 and the creation of the EFSM. It seeks to limit our national liabilities should the political understandings about its further use not be honoured. However, few of us believe that it is as simple as that. Whether through the front door, which is now the ESM, or the back door, whether that be the IMF or the ECB, the search for a change in the status quo will continue to elude Europe. Sticking plaster will not work; there is a fundamental flaw in the eurozone as it is currently established. Continuing political weakness in the eurozone only adds to the risk. The political timetable ticks on for Chancellor Merkel as she surveys a recent spate of election results within her own country and without. The message from these polls is the same—people have reached and gone beyond their level of tolerance for austerity, whether it is justified or not. Those with the sweeter medicine to offer are winning, while those with the more realistic and justified difficult decisions to take are losing.

However, I have little sympathy for the position that Germany now finds itself in. Chancellor Merkel’s predecessors knew of the risks that were being taken when Germany agreed to let countries such as Greece and other European economies into the euro. Subsequently, they all broke the rules at one time or another. While I have grave concern for the Greek people, the truth is that their Government were profligate

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in their spending on a bloated public sector in particular, and lied about the state of their economy. But the blame game is not going to change things. We have to deal with the present and, because the UK is so inextricably linked to the fate of the eurozone, it is definitely in our interests that the present mess is cleaned up.

I listened with some concern to the intervention made by the noble Lord, Lord Radice, when he indicated that perhaps we should at this stage make further financial transfers to the eurozone. I do not know what he hears from the people, but I think that that message would be a very hard sell. I understand his rationale; yes, we have partners and want to work together. But when we are not able to pay our own bills as we would like and when our own debt continues to rise and will do so for several years to come, I fear that that will be a very difficult sell. Yes, I know we have heard talk about influence before. Are we going to be marginalised? We are one of the best customers of the countries of mainland Europe. That is where one gets a lot of one’s influence. If we were so influential, why was the euro established? That indicates that even at that stage the people who took the decision had a totally different agenda, as the noble Lord, Lord Lawson, said—and we all know what it is. I say “is” and not “was” because the agenda is still there.

Whether we discuss German-backed Eurobonds—I guess that we will talk about that tonight—or an orderly Greek withdrawal from the euro, we have an overwhelming interest in our European partners’ successfully resolving this crisis. This Bill is but one small contribution to that process. It is a tidying-up exercise. Following the passage of the European Union Act 2011, we are at least getting to review significant decisions for the first time.

Would it be possible to ask those in key positions of responsibility for our finances both nationally and internationally—such as the Governor of the Bank of England, the head of the IMF and the governor of the ECB—not to make so many public statements? Every time they speak they upset the markets. They should confine themselves to commenting on their statutory obligations. Statement after statement unsettles the markets and drains their confidence. Ultimately, that hurts us all. I would like those who are in such key positions to maintain a period of dignified silence, if that is possible.

I am sure that we have not had our last debate on this and related matters. However, when we discuss eurozone matters again, I hope that there will be a clear and credible plan to resolve this crisis. It is certainly not visible to me at this stage.

5.51 pm

Lord Flight: My Lords, the Bill looks to me to be essentially a no-brainer that commands the support of those on all sides. It is necessary to understand what it is all about and what the European institutions do. I am particularly concerned about what Britain’s liabilities, and potential liabilities, might be.

It seems to me that we are facilitating a quid pro quo deal. Germany needs the amendment to Article 136 for its participation in the February intergovernmental

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treaty obligation to be considered legitimate by Germany’s Federal Constitutional Court. The Prime Minister believes that once Article 136 is amended, any further liability that we have under the initial financial stability mechanism will cease. The issue arises whether this matter would invoke a referendum under the terms of last year’s European Union Bill. However, the Foreign Secretary has confirmed that no powers are transferred, so that is not the case.

As I understand it, this issue arose during the interregnum period after Labour lost the 2010 general election and Chancellor Darling was still the interregnum Chancellor, as it were, when he committed the UK to supporting the initial European financial stability mechanism fund. I say candidly that this was a mistake and that the establishment of the fund was highly questionable. It was set up under Article 122, which provides relief in the event of natural disasters occurring, not relief for Governments who are having problems raising money. The fund was able to provide support worth €60 billion, of which €48.5 billion was committed to Ireland and Portugal. Some €11.5 billion remains unused, of which Britain’s liability is 15%—a total of €1.34 billion. That liability is supposed to end once the formalities of amending Article 136 are completed, and all 28 EU members are signed up to that.

The mechanism of facilities under this fund has been that the European Commission borrows from the capital markets against the contingent liabilities of EU members to provide the finances. I ask the Minister whether members have actually paid up, or whether the Commission has paid but has not yet collected the money owed by the various members. I ask that in particular because my understanding of the arrangements is that the liabilities of members are joint and several. That is to say that if, by the time they have to pay, some members are unable to pay or are insolvent, their liabilities are transferred to members that remain solvent. That is somewhat like the last-man-standing rule applying to pension funds. There is therefore a question as to whether the UK has a material contingent liability relating to the initial fund.

Somewhat like the noble Lord, Lord Lamont, my first question on investigating this territory was to ask: what are the catches and the potential weaknesses in what seemed like a win-win proposal? The second point is that it is not at all clear when or if Britain’s legal liability in relation to the outstanding balance of €11.5 billion comes to an end. It was a political deal that there would be no further drawings under the initial fund, and I think there is agreement that the fund is capped once Article 136 is duly implemented. It is not clear when that is going to happen. It is supposed to happen in July, but it may not be until January, by which time it is entirely possible that further developments will overtake the situation.

Subsequently, as noble Lords will be aware, the 17 eurozone members set up the European finance and stability facility in May 2010, but Britain is not part of it. The facility borrows capital from the markets, again backed by eurozone member guarantees, and pulls together total commitments of €400 billion, of which some €188 billion is already committed—€144 billion to Greece, with the balance going to

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Ireland and Portugal. I am clear that Britain has no direct liability relating to this fund, which is then to be rolled over into the new European stability mechanism, the establishment of which the Bill relates to, because amendments to Article 136 are required.

The amount to be rolled over from the second fund is therefore of the order of €220 billion, which is part of the €700 billion that the new ESM is providing as its firewall. This, again, is to be funded, I understand, by a mixture of paid-in and callable capital. I would be interested to hear from the Minister whether liabilities in relation to that mechanism are also joint and several, as I presume they are. I make the point alluded to by other noble Lords that if you continue on the joint and several liabilities front, the potential bill building up for Germany gets larger every day.

Considering all that, it looks as though the UK’s position on potential liabilities is reasonable, but I am interested to know what other potential hidden catches there are. I have already made the point about whether our liabilities under the first fund can increase if other members are unable to honour their commitments. Given the history of the EU, I am also cautious about dealing with the potential reinterpretation of treaties that are signed. We have the immediate example of Article 122, which was used to establish the first fund when it was actually intended to relieve natural disasters.

I have already referred to liabilities in relation to the first fund but, as I understand it, there are two other major areas of potential liability. I believe that the ECB can call on up to €50 billion of foreign reserves held by the Bank of England, and, more fundamentally, I believe that the EIB can call on members for financial support, should it, for example, sustain significant losses on loans made to Governments in trouble. I believe that the maximum UK commitment here is €35.7 billion. Strangely, this is 39.6% of the total that all members would need to contribute, but we are shareholders to the tune of only 16%, so I am not quite clear why we have that greater liability. In short, I ask the Minister what the UK’s total contingent liabilities are in relation to the eurozone. I think it is important that the House has the accurate figures.

I close by commenting that I agreed with virtually every word that the noble Lord, Lord Lawson, said. I think that his analysis was absolutely accurate and correct. It also seemed to illustrate that this situation is just like that of the gold standard in the early 1930s. Then, everyone was terrified, believing that you could not come off the gold standard or the whole world would come to an end. The gold standard did the same as the euro; it stopped countries in real trouble being able to devalue and get their economies going again on a competitive basis. When everyone had given up the gold standard, people said, “Why did we regard it as a religion for so long? We have been afforded relief at last”. Although I appreciate that the break-up of the euro, which is inevitable, will bring pain—and the pain may be worse because of the EU’s failure to organise an orderly break-up—within a given period, once it has happened, people will again say, “Why on earth did we stick with this currency, which prevented us from devaluing and has driven our

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economy into the dirt?”. It is absolutely clear that the economies of southern Europe need major currency devaluation.

6.02 pm

Lord Clinton-Davis: Some time ago, the noble Lord, Lord Howell, explained the purposes and effects of the Bill, and I wholly approve of the intentions that underlie it. It is a technical Bill, but I want to speak about other matters and I am not the only one to do that.

We have had the voices of doom and gloom from the noble Lords, Lord Lawson and Lord Lamont. The noble Lord, Lord Lawson, spoke of arrogance and irresponsibility, and he knows what he is talking about because that explains the whole purpose of his chancellorship. His period of office was not exactly crowned with glory. I think that writing off the European Union as he has done is irresponsible in itself. Our job is to save it, not drown it.

I approved very much of what my noble friend Lord Radice said, especially his remarks concerning the relationship between this country and the eurozone. The Bill has to be regarded against the background of the current crisis affecting the eurozone, and we cannot be immune from its possible deleterious effects. Of course, the crisis directly involves Greece. Ireland, Italy and Spain are also involved, and it would be idle to pretend that the entire European Union is not affected; of course it is.

Some argue that the euro is bound to fail—a scenario which I refuse to accept. Talk of that kind will inevitably lead to the collapse of the euro. I am rather more optimistic about its prospects of survival. Some argue that Greece will have no alternative but to leave the euro and possibly the European Union. I hope that that will not happen. It is, of course, for the Greek people to decide their country’s fate, but to pretend that Britain would be unaffected and that contagion is remote is idle to contemplate.