Unrevised transcript of evidence taken before

The Select Committee on the European Union

Inquiry on

18-19 OCTOBER EUROPEAN COUNCIL, SCRUTINY AND MFF NEGOTIATIONS

Evidence Session No. 1 Heard in Public Questions 1 - 59

THURSDAY 1 NOVEMBER 2012

2.10 pm

Witnesses: Rt Hon David Lidington MP, Jill Morris and Thomas Barry

USE OF THE TRANSCRIPT

1. This is an uncorrected transcript of evidence taken in public and webcaston www.parliamentlive.tv.

2. Any public use of, or reference to, the contents should make clear thatneither Members nor witnesses have had the opportunity to correct therecord. If in doubt as to the propriety of using the transcript, pleasecontact the Clerk of the Committee.

3. Members and witnesses are asked to send corrections to the Clerk of theCommittee within 7 days of receipt.

1

Members present:

Lord Boswell of Aynho (The Chairman) Lord Bowness Lord Carter of Coles Lord Dear Baroness Eccles of Moulton Lord Foulkes of Cumnock Lord Harrison Lord Maclennan of Rogart Lord Marlesford Baroness O’Cathain Lord Richard The Earl of Sandwich Baroness Scott of Needham Market Lord Teverson Lord Tomlinson Lord Trimble Baroness Young of Hornsey ________________

Examination of Witnesses

Rt Hon David Lidington MP, Minister for Europe, Jill Morris, Additional Director,

Europe Directorate, and Thomas Barry, Deputy Head of Europe Directorate (Internal),

Foreign and Commonwealth Office, gave evidence.

Q1 The Chairman: Thank you, Minister. You are always welcome to this Committee,

with which you are not unfamiliar. It would be helpful if you would introduce your two

officials, who are also very welcome.

Mr Lidington: If I may, I will ask them to introduce themselves for the record.

Jill Morris: My name is Jill Morris. I am Additional Director, Europe, in the Foreign Office.

Thomas Barry: My name is Thomas Barry, Deputy Head of Europe Directorate (internal).

Q2 The Chairman: Although you are familiar with this, you will appreciate that there are

bits of housekeeping so everyone is clear on the rules of engagement. First, this session is

now in public and will be televised; secondly, a transcript is being taken; and, thirdly, the

2

transcript will be sent to your officials. You will have the opportunity of making minor

corrections to it, although it will be published online in an uncorrected version first. That is

pretty well standard practice. Before we start our questions, I would like to remind

members of the Committee that they have an obligation, as this is a one-off oral session, to

make declarations of interest as appropriate as and when they ask you a question, Minister.

Are you all clear about that and happy with it?

Mr Lidington: Indeed.

Q3 The Chairman: I am assuming that you do not need to make a preliminary statement

at the moment. We have a lot of questions, and we will do our best with them. I will kick off

with the first of these. We have recently had some difficulty in obtaining the deposit of some

documents which, while they are not legislative proposals that automatically fall to us, as it

were, are nevertheless important for this Committee and its Commons counterpart to

consider, such as President Van Rompuy’s issues paper on economic and monetary union.

We would like to ask you what you and your colleagues in the Cabinet Office are doing to

ensure that departments receive clear, simple and up-to-date guidance on the scrutiny

process so that these apparent difficulties can be avoided in future.

Mr Lidington: The Government take very seriously their obligation to the scrutiny process

and welcome the widest possible parliamentary interest in that work. We have submitted

written evidence to the Commons European Scrutiny Committee for their inquiry into the

scrutiny process, and I gave oral evidence to them yesterday on that subject.

To answer your question directly, there is an active network of departmental scrutiny

co-ordinators within the Government. These officials meet regularly to discuss scrutiny

issues, including points that the committees themselves have raised. That group has

developed official level guidance which is then supposed to guide all Whitehall departments

to address some of the key elements in the scrutiny process. We keep that guidance as a live

3

document; it is reviewed regularly. It needs updating to reflect post-Lisbon legislative

procedures and other scrutiny process changes. I said in my letter to you of 19 July,

Chairman, that we and the Cabinet Office are working with other departments and both

Lords and Commons committees on that updating. We hope that we will make some

progress towards a final updated version of guidance over the next few weeks.

The underlying message that I try to get across to other government departments is that

where there is any doubt about the most appropriate way to handle scrutiny issues they

should consult the Cabinet Office and the FCO, where appropriate, and also the clerks to

the committees, because sometimes that regular informal consultation with the clerks can

avoid some of the misunderstandings and controversies that occasionally beset us.

There are some genuine problems. For example, since the creation of the External Action

Service more foreign and security policy papers have been produced by way of action plans

and other working documents that are not caught by the current language of the scrutiny

resolutions. They do not have a legislative impact. The type of action plan or working

document can be anything from quite a high-level, significant and strategic review to a pretty

mundane document. I am open to working with Parliament to see if we can find a way to

establish a qualitative test that everybody would agree to, although at the end of the day

these often boil down to matters of judgment on the basis of individual documents.

Q4 The Chairman: I am putting words into your mouth, but it is not inherently

unreasonable that, if we want something deposited, at least the default mode would be that

we should have it deposited for us to look at under scrutiny.

Mr Lidington: It is not an unreasonable position, but I would want to enter the caveat that,

for example, we would not want to agree that certain measures were caught by the scrutiny

resolution and reserve procedures which did not have a legislative impact if our acceptance

of an obligation, rather than a discretion, to deposit—I stress that—meant that we might be

4

assumed to be accepting there was a legislative impact, and in some way allow competence

creep by setting a precedent for the future about the status of a particular EU initiative.

Similarly, I would not want to agree that as a matter of course the Council conclusions

should become depositable—they never have been under any government—but it ought to

be possible for the committees and the Government to come up with a habit of working

together which enables the committees to see documents that are genuinely of political

significance.

Q5 The Chairman: That is helpful. After a degree of to-ing and fro-ing the interim report

on economic and monetary union, to which I have already referred, was eventually

deposited on Tuesday 16 October. We as a Committee wrote to the Government the

following day on a point of particular importance for the upcoming European Council

starting on the 18th. Our Economic and Financial Affairs Sub-Committee under Lord

Harrison is now looking into the interim report in more detail ahead of the December

Council. Our view would be that this shows scrutiny working well. It is an iterative process

and continuing conversation with you. At this stage, do you have any further proposals on

how we can work together so that this parliamentary scrutiny can be more effectively

achieved?

Mr Lidington: I make two suggestions. One is that we have a look at delegated and

implementing Acts, of which there are a vast number. I do not think that either the

Government or the committees would welcome separate explanatory memoranda on a

couple of thousand such measures each year, especially when most of them are very

technical in character. Some of those will have genuine political significance, and I would be

happy to explore whether there is a way in which we can agree that in certain circumstances

those might be deposited.

5

The Government would like to see if there could be agreement with Parliament, whether

formal or informal, on a process that meant we could streamline things a bit better,

distinguishing between documents of genuine political, legal or constitutional significance and

those that were not. Since Lisbon it should be common ground that there has been an

increase in the overall number of documents coming forward, but also with CFSP there has

been a change of working practices which means fewer documents are depositable than

before. I would like to see if there is a modus vivendi where we can try to ensure that

Parliament gets full EMs on those things that really do matter and in return perhaps allows us

to use less official time to go through the procedure of a formal explanatory memorandum

with the detail we provide at present on something that is pretty routine in character.

Q6 The Chairman: Do you find that the override and/or waiver process plays into all

this? Is that a discomfort for you, or not?

Mr Lidington: I never like agreeing to an override.

Q7 The Chairman: I appreciate that. The tone of your letters is very contrite.

Mr Lidington: There have been occasions where on Foreign Office matters, because my

officials have sent back a message that the Minister will not override on this, they have put

off bringing forward a particular measure, because I felt that the EAS basically had not got its

act together in time. But there will be occasions—sanctions are the most obvious

example—where speed is essential if the sanctions are to have bite. In those circumstances,

an override is inevitable. Ultimately, the only way to avoid an override system is to go to

something much more like the Danish hard mandate model of scrutiny, which would be a

significant difference from our current constitutional practice.

Q8 Lord Hannay of Chiswick: Could I ask a supplementary on your vision of the

Cabinet Office machinery for dealing with scrutiny, which you dealt with in your answer to

the first question? Do you not think it might be a good idea for it to be made clear that no

6

individual department may continue to block a request from either of the scrutiny

committees for a document without it being referred to collective decision in the Cabinet

Office?

Mr Lidington: I am prepared to take that idea away and discuss it with colleagues. I do not

think I can give you any indication now.

Q9 Lord Tomlinson: When you were talking about explanatory memoranda it reminded

me that possibly the question I ask most frequently in sub-committees is how you manage

the magic of increasing the workload of a particular Directorate General and it has no

financial implications. My suspicion is that that is a nice, convenient and lazy way of writing

about something we do not know. Only this week there was one about creating two new

databases, but it has no financial implications. If you manage to crack monetary problems like

that, I do not know what yesterday’s debate in the House of Commons was about.

Mr Lidington: Obviously, I do not have sight of the particular example Lord Tomlinson

describes and cannot speak with authority on the analysis conducted by all other Whitehall

departments. It may be—I am speculating here—that the requirement to establish databases

at national level could be accommodated within the way we do such business anyway

without adding to the cost in order to comply with this new European measure. That may

explain the apparent contradiction that Lord Tomlinson identified. All I can say is that I know

every Secretary of State and Minister in the Government is acutely aware of the need to

look for economy in every aspect of our work, whether at domestic or European level. I

would be very surprised, knowing the views of my ministerial colleagues and the approach

taken on behalf of the Government by the Permanent Representative, if those details were

being overlooked. I would want to defend officials against the charge of laziness in this,

because in my experience they take the question of money very seriously.

7

Lord Tomlinson: Just once in a while I would like to see something on the financial

implications which says, “This project is a damned waste of time and we ought to kick it out

because it is costing too much”.

Baroness O'Cathain: Surely, when we scrutinise it that is our job.

The Chairman: We have heard those exchanges with some interest and possibly, dare I

say, with some sympathy.

Q10 Baroness Scott of Needham Market: I want to stick with explanatory

memoranda, to which you have referred in the past, that you suggested needed streamlining.

Can you give us a flavour of the discussions you have been having with colleagues across

government departments, and when we might expect some proposals?

Mr Lidington: We have had preliminary discussions at official level about scrutiny, but one

of the things I have not wanted to do is get into the situation where the Government are in

effect going to Parliament and saying, “This is what we want you to agree to for scrutiny

reform”. Unless these ideas have genuine buy-in from both Houses of Parliament and across

political parties they simply are not going to work. We will have a succession of rows. That

applies both to the formal scrutiny process and to some of the informal changes that I would

like to see in the culture of the House of Commons in particular, with the departmental

Select Committees there taking much more seriously their European oversight

responsibilities. I was deliberately cautious on this and said that essentially it was for

Parliament to come forward and talk to us about ideas for improvement.

Q11 The Chairman: The idea would be to try to give some areas greater salience where

they were regarded as either politically or legally important.

Mr Lidington: Yes.

8

Q12 The Chairman: As to other areas, I do not mean we should nod them through

because we have an obligation, as indeed do Ministers because of their accountability, but we

should try to articulate some understanding about the hierarchy.

Mr Lidington: It might be a memorandum of understanding which also involves contact

between officials and the clerks to the committees. Some kind of fast-track system might

also help with the difficulty we find ourselves in with very fast-moving items, like sanctions

measures. Sanctions normally need both a Council Decision and Council Regulation. They

often come out at different times. One option might be that we have a normal scrutiny

process for the decision but the regulation that implements that decision in detail goes

through a more streamlined, quicker process.

The Chairman: We will pass on to what possibly, in view of recent happenings, you may

regard as the main event: multiannual financial framework. I will ask Lord Tomlinson to kick

off on that.

Q13 Lord Tomlinson: I would like to ask you about the process of the negotiations. You

will no doubt have seen our correspondence with the Financial Secretary regarding the

changes made to the September negotiating box that were unfavourable to the United

Kingdom Government. The latest negotiating box now proposes cuts to the overall

envelope below those the United Kingdom had demanded, leaving further cuts to be

negotiated. What efforts are the Government making ahead of the November Council to

ensure that the United Kingdom’s position is persuasively communicated to our many allies

on these matters?

Mr Lidington: The latest version of the negotiating box is certainly not the final stage. The

Cypriot presidency’s proposals included some things that we do not welcome, but did at

least for the very first time go below the Commission’s original spending figures, but the

presidency then said in terms that significant further cuts would need to be agreed if there

9

were to be a prospect of a deal at the summit. I thought that acknowledgement from the

presidency was significant. At some stage in the next two weeks, the President of the

European Council will have to take over that dossier from the rotating presidency and come

forward with a set of figures to put to leaders in the hope of an agreement on the 22nd or

23rd of November. We have a way to go. We certainly think that those reductions in the

latest negotiating box do not go anything like far enough.

To deal with Lord Tomlinson’s question about what we are doing, our diplomatic network,

both at UKREP but also in the 26 posts around the rest of the European Union, has the

subject of the MFF pretty much at the top of its list of priorities at the moment. They are in

constant touch with private offices and advisers to heads of government, foreign and finance

ministries and other arms of government as appropriate. There has been an increase in the

number of senior official visits by British officials to key capitals, and others have come to

London. The Cypriot Europe Minister is over here today, for example.

At ministerial level my colleagues in the Treasury are obviously making contact with their

opposite numbers. Speaking for myself, in the last fortnight as well as going to the

General Affairs Council in Luxembourg and having the expected conversations there, I have

been to Berlin, Rome, Warsaw and Madrid, and I have seen the Hungarian Europe Minister

in London, so we are acting both in Brussels and bilaterally.

Q14 Lord Tomlinson: Successfully you hope.

Mr Lidington: I hope successfully.

Q15 The Earl of Sandwich: I have a question about the horizontal issues. I have never

understood why the various contingency reserves, the solidarity fund and the flexibility

instrument all are left outside. I hope you will be able to explain why this is. We took up a

particular position in our last report and we understood that you agreed with it. What has

happened since?

10

Mr Lidington: The off-budget items.

Q16 The Earl of Sandwich: They ought to be included.

Mr Lidington: Our position is still that those measures that are outside the financial

framework in the Commission’s and presidency’s proposals all ought to be put on budget. It

is not just our view; it is the view the German Government in particular but our allies in

Sweden, the Netherlands, Denmark and Austria are also advocating very strongly. There

were a number of changes in the most recent negotiating box where ITER and GMES were

both moved on budget in their proposals, but still too many items are being left off budget.

We think that all the sectoral legislation that has to accompany the multiannual financial

framework needs to contain substantial elements that contribute to simplification, improving

accountability and better spending of EU funds. I have a statistic. The total effect of the latest

version from the Cypriot presidency is to move about €17.5 billion that had been off budget

in the previous version back on budget. We are not yet in the position where we would like

to be, but at the end of the day nothing is agreed until everything is agreed in this package,

so we are continuing to press for everything to be on budget.

Q17 The Earl of Sandwich: The phrase they use is “given their specificities”. What does

that mean?

Mr Lidington: I am looking to my officials to see whether they can provide a translation

from jargon to English, but it beats me.

Q18 The Earl of Sandwich: The fight is not over.

Mr Lidington: I think it is an attempt to find a justification for ring-fencing certain items of

expenditure so that they are taken outside the pressures that the Commission knows will

come from all the net contributors to get the sums proposed by the Commission very

significantly lowered.

Q19 Lord Tomlinson: But EDF has been outside for a long time, has it not?

11

Mr Lidington: EDF has been outside.

Q20 Lord Tomlinson: The reason it stays outside is that there are different keys for the

Member State to make their contribution to it. Some members favour it because it will

reduce their contribution and others are desperately opposed to it because it will increase

their contribution.

Mr Lidington: Yes. EDF has probably been one of the more effective of the EU spending

programmes, but in the interests of overall budget transparency, even though that has always

in the past been off budget, it is better if it is brought on budget along with everything else.

Lord Teverson: I absolutely welcome that if, in the final, final deal, that is achievable. It

does have a financial penalty for the United Kingdom in doing it, but in terms of budgetary

control and coherence in the whole development policy it has to be right, so that is an

excellent move forward.

Q21 Lord Hannay of Chiswick: As I am sure you are aware, at this end of the corridor

we support the position taken by the Government on a freeze in real terms. Could I ask you

whether any of the signatories of the original letter about a freeze in real terms—the group

which I suppose you would not wish to be called the friends of austerity—agree that the

baseline should be the 2011 budget?

Mr Lidington: I am reluctant to get drawn too much into the detail of what is a live

negotiation when the people who would be most keen for me to develop some of this in

public would be those who are arguing against us on the Council. There are talks taking

place on a regular basis at both official and ministerial level, particularly between ourselves

and our allies. We call ourselves the friends of better spending rather than the friends of

austerity. We meet as a group ahead of every General Affairs Council meeting and try to

co-ordinate tactics there. Every member of that group has its own national interests at

stake, but we have managed to maintain a common front in arguing for strict limits to be

12

imposed upon the overall level of EU spending, and for much more rigorous value for money

over whatever sum it is agreed should be spent.

At last month’s General Affairs Council we hosted the breakfast meeting. I then spoke at the

plenary session on behalf of all the countries in that group. That has held together well so

far, but in that group, as in the group of recipient countries who style themselves the friends

of cohesion, there are national differences and it would be foolish to pretend otherwise.

Lord Hannay of Chiswick: I think I understand what the answer really is.

Q22 Lord Richard: Do we know the members of that group? Is that public?

Mr Lidington: I am happy to tell you that the countries that normally meet as well as

ourselves are Germany, France, Austria, Finland, the Netherlands, Sweden, Denmark, Italy

and the Czech Republic.

Q23 The Chairman: Off the top of your head, do you have an idea of the proportion of

the budgetary income, or revenue, which is attributable to those countries?

Mr Lidington: I do not off the top of my head. I will ask officials if they can come up with a

figure and perhaps provide it to the Committee a little later on.

The Chairman: That is helpful, and obviously relevant.

Q24 Lord Richard: My question is a very simple one. What do you see as the prospect

now for a full political agreement at this extraordinary 22 and 23 November Council

meeting, particularly having regard to the fact that a number of very tough stances are being

taken and expressed in the media, including from the Prime Minister who suggested there

may be a UK veto, and the Danish Prime Minister who is threatening a veto unless the final

agreement includes a Danish rebate? We also had last night’s vote in the Commons which

we cannot totally ignore in this context because it is the background against which the Prime

Minister will have to go to the Council meeting in November. What do you see as the major

blocks to getting an agreement at the meeting in November?

13

Mr Lidington: The major blocks are the fact that, more so than in 2005, national

governments throughout the European Union are under acute pressure on economic

grounds, because most of them are having to impose stringent austerity measures upon their

own populations. That applies to net contributing countries like ourselves, but it applies in

many of the recipient countries as well, some of whose Ministers have said to me, “We are

cutting hard at home; we need to have the additional EU spending to offer our population

some hope of growth and relief.” There are also political pressures. The ones in the United

Kingdom are well known to members of the Committee as well as me, but those political

pressures are there elsewhere. We are seeing the rise of political movements and parties in

Finland who are campaigning successfully on the basis of resistance to EU spending plans.

We have seen the emergence in Greece and Hungary of some extremely unpleasant

manifestations of political discontent. We have seen in Italy a fall in confidence in the more

established political parties and support for a populist movement in recent elections there.

All governments are under pressure. I believe that 17 out of the 26 are net gainers from the

budget. Between them on the one hand and those countries like ourselves who are paying in

on the other there is a gap. I am glad that Lord Richard said it is not just the British Prime

Minister who has the power of veto and might feel compelled to use it. The Prime Minister’s

view is that he believes it would be better if we could get a deal in November than not.

Europe has enough problems on its plate without this argument dragging on for months and

months. In terms of just proper, orderly financial planning for 2014 the sooner an

agreement can be reached on the overall ceilings and then on the sectoral legislation the

better. He also takes the view that he will go in fighting incredibly hard for the interests of

the United Kingdom. He is willing to do a deal which he believes is in the national interest of

the United Kingdom, but he would rather not have a deal than accept one that he could not

honestly say he felt was in our national interest.

14

Q25 Lord Richard: Presumably, that means a freeze.

Mr Lidington: He has said that he wants to see a cut or freeze. He is on record as saying

that he will not accept under any circumstances something that will be more than a real

terms freeze, and certainly if there is any opportunity of a cut in EU spending he is going to

seize it with both hands. But I think it ought to be acknowledged that the stance the Prime

Minister and the Government are taking now is tougher and more ambitious than that of any

previous government of any political party in the approach to comparable framework

negotiations.

Q26 Lord Richard: Is that a good or bad thing? If we are talking about getting a result in

the negotiations, the worst possible result would be if everybody else agrees on the

framework of a deal and the British are saying no to it. That would be disastrous.

Mr Lidington: It is not just we who are saying there needs to be budgetary rigour.

Q27 Lord Richard: I know, but I am talking about the result of a negotiation. Are we

really going to go into those negotiations and say, “Look, the rest of you can come to an

agreement but if it does not meet our strict requirements we will veto it”? Is that our

attitude?

Mr Lidington: The Prime Minister will agree to a deal only if he believes that is in the British

national interest. He would be quite rightly criticised if he accepted something that he

regarded as contrary to our national interests.

Q28 Lord Marlesford: As a matter of interest, do you feel that this issue could have had

a better chance of amicable settlement if the Commission had originally shown a little more

understanding of the situation of national governments in the proposals they put forward for

the huge increase?

Mr Lidington: Lord Marlesford is absolutely right. Despite the fact that I have a cordial

relationship with all of the Commissioners I have met, one of the frustrating things is that

15

there has been a misjudgment by the Commission of the mood and extent of democratic

tolerance not just in the United Kingdom but in a number of member states. Not just we

but many governments have found it extraordinary that at a time when national

governments are having to make pretty painful cuts that affect families in their own countries

the Commission somehow regards it as taboo to search for similar measures in its own

spending, and there is nothing like the rigorous search for priorities that the UK, German,

Dutch or Swedish governments submit themselves to. What makes this cultural gap even

more stark is the fact that when the Commission sits in judgment upon those countries in

the European Union that are failing to meet their borrowing and debt targets, its recipe is

that they should cut. So it is urging Greece, Spain, Portugal and Ireland to make very severe

cuts and impose drastic austerity measures, yet it does not apply those principles to its own

budget. I think that is wrong.

Q29 Lord Foulkes of Cumnock: Is the Government’s negotiating stand now what it

was before yesterday—in other words, no real terms increase—or what was decided by the

House of Commons, which was no cash increase?

Mr Lidington: The Government’s stand remains that the Prime Minister will be seeking an

agreement in November that is in the British national interest. He will be fighting incredibly

hard, with the full backing of every Minister in the Government and right across the

coalition, to get that outcome.

Q30 Lord Foulkes of Cumnock: With respect, that does not answer my question. Is he

going to be arguing for no real terms increase—in other words, an extra £300 billion a

year—or is he going to say, “No cash increase”, which was what the House of Commons

decided yesterday? Which is the position?

Mr Lidington: We have said consistently we want to see the budget reduced to a real terms

freeze at the very most, and that is what we will be fighting for. Very much in the Prime

16

Minister’s and Deputy Prime Minister’s minds will be the knowledge that at the last financial

framework negotiations the UK came out with a deal that left us facing significant increases

in our contributions over that period, back-loaded on to the most recent years: the end of

the framework period.

Q31 Lord Foulkes of Cumnock: I do not think you have clarified that, but let me try

another one. There is no agreement about how the moneys or revenues are going to be

raised to cover this expenditure, whether it is own resources or contributions from national

governments, so is it right that a decision is going to be made on the next five years’

expenditure without any agreement about how it is going to be raised?

Mr Lidington: No. They have to go together. Any deal has to cover both the expenditure

side and resources side. When it comes to parliamentary handling, we have to have primary

legislation for the own resources decision here. There has to be a new own resources

decision at the same time as the new framework, because, for example, a number of

countries, unlike ourselves, have rebates, elements of which at least are time-limited and

therefore have to be renewed each time a new framework and new own resources decision

is agreed.

Q32 Lord Foulkes of Cumnock: Is it right that you will have to have a compromise

agreement with the European Parliament before our Government agree to the expenditure?

Mr Lidington: No. The process is that the European Council comes to a unanimous

decision, and the European Parliament has to assent to the sectoral legislation. In the words

of the treaty, the European Parliament has to consent to the overall MFF package as well.

When it comes to the sectoral legislation that is part of that package, that proceeds by

co-decision according to the ordinary legislative procedure. The European Parliament has a

hand on it, but the key element is that the deal has to be done by the heads of state and

17

governments first, and then the European Parliament can say whether or not it agrees with

the outcome.

Q33 Lord Foulkes of Cumnock: You have explained the procedure very well, but what

I am trying to get at is that, whatever the procedure, there is going to be no agreement on

expenditure unless there is a simultaneous agreement about how the money is going to be

raised. Is that right?

Mr Lidington: Yes; they are all parts of the whole. There has to be agreement on both

sides. As Lord Foulkes knows, we have made our position on own resources very clear

indeed.

Lord Foulkes of Cumnock: So has the European Parliament.

Q34 Lord Carter of Coles: Mine is a narrower question to do with practical steps to

drive economic growth. Connecting Europe was referred to in the October Council

conclusions as an important instrument for growth. We would like to know what

representations you are making to ensure that sufficient funding is available to achieve the

important goals of this facility. In particular, in the area of energy we would like to know

whether you are taking a strong approach consistent with DECC’s recent written

submission to the inquiry we are conducting into EU energy policy.

Mr Lidington: Of course, the positions any Minister puts forward will be consistent with the

position that DECC is taking as regards energy policy. I make two points in response to

Lord Carter. As I am sure he will accept, the provision of this kind of infrastructure is not

just a matter for EU or government spending of any type. Most infrastructure is private

sector-funded, and we should not be doing things that get in the way of sensible private

sector investment.

We do acknowledge that European Union spending can be helpful in providing cross-border

infrastructure where the market and private sector will not make that provision itself. One

18

example on the energy front would be looking at the Baltic and the proposed networks to

ensure that the Baltic republics are linked in to the main European electricity networks. That

would help in terms of their energy security, so there would be a strategic benefit as well as

an economic one.

Having said that, we also think that the increase that the Commission has proposed for

Connecting Europe is too large given the overall budgetary context and that the figure it is

proposing is not justified by sufficient detailed evidence that the benefit would be delivered.

We have said there should be a significant reduction. The Commission has proposed what

amounts to a 400% increase in infrastructure spending. With the best will in the world, we

think that is unaffordable at the moment. We want to seek a significant reduction from that

figure. Exactly what sum we are talking about depends in part on the other moving parts of

this negotiation where savings can be found elsewhere in the Commission’s proposals.

Q35 Lord Carter of Coles: On that very point, what priority in these difficult choices

will you be giving this? We recognise the trade off.

Mr Lidington: We have said across the board, not just in respect of connecting Europe but

more broadly in terms of structure, cohesion funding and the innovation budget, that we

think the balance of EU spending should be tilted towards measures that encourage

economic growth and will include encouraging those cross-border links that will contribute

to sustainable growth in the poorer parts of the EU in particular. That requires two things. It

requires better spending in every heading of the EU budget. Too often we can all point to

examples, whether it is cohesion or elsewhere, where money has been allocated and not

spent in a way that will deliver long-term growth; it has been wasted. We also say that we

want to see those changes and greater focus on growth-promoting measures and spending.

That has to be done in the context of a tight overall ceiling on spending that takes account of

what we are expecting our taxpayers and other taxpayers in Europe to pay into the EU.

19

Q36 Lord Harrison: Minister, welcome as ever to this Committee. The Financial

Secretary, Greg Clark, was our final witness on Tuesday in our inquiry into banking union,

the report of which this Committee will publish probably in December in anticipation of the

later European Council. Given both the integrated nature of banks across Europe, the 6,000

within the eurozone, ourselves and other parts of European Union, and the fact that the

EBA will be devising a rule book that will also operate for third countries doing trade in the

European Union, is it wise to adopt a position in which we absent ourselves from this

banking union, yet still hope to remain influential? If I can relate it to the purpose of the

banking union, which is to secure the eurozone, in a similar fashion we are saying on the one

hand—the Prime Minister says it a lot—that it is in the United Kingdom’s interests that the

eurozone is successful, yet we absent ourselves from support of it either morally or in other

ways. How do you propose to close that gap, both in the case of the banking union and in

terms of supporting a revival of the eurozone, given that it is so important to the United

Kingdom?

I finish my question by asking you to imagine another country that stood outside the banking

union, say, or the eurozone but still sought to make pronouncements, give advice, prompt

and encourage the countries within the banking union, which will be more than the EU 17 or

those within the eurozone. Might we look on them sceptically were we one of the ins?

Mr Lidington: Lord Harrison poses two very big questions. Let me deal with the more

technical side first. Obviously, the Financial Secretary will have been able to give much more

detailed evidence on this point to the Sub-Committee. It is important to recognise the

conceptual difference that we are making here. On the one hand, we are saying that there is

a single market in financial services, and we are part of that in the same way that we are

central to rest of the single market. We are going to negotiate directive-by-directive or

regulation-by-regulation to get the best deal for the UK and particularly for the City of

20

London and the bigger financial services industry of this country. That we have done over

the last two and a half years since the Government took office, and we continue to play a

very active and constructive role there. If one looks, for example, at Commissioner Barnier’s

proposals of a couple of months ago for a banking resolution and recovery measure, that

was something the Chancellor of the Exchequer welcomed. We have a quarrel with some

elements of that proposal, but we have said that broadly it is right. We have welcomed the

Liikanen proposals, which seem to have been influenced to a considerable degree by the

Vickers reforms that the Government are now implementing here. I would argue that we

are playing a very active role in that work, including through the EBA, and that the fact of

our expertise in financial services and recognition by us that this is a strategic British national

interest means that we continue to have a powerful influence in these negotiations.

In passing, one thing we have to get better at as a country, including the City in particular, is

selling the fact that to have a global financial services centre in London is an asset to Europe,

not just the United Kingdom. The more we can do to get that message across the better.

The second element is that I have always believed a monetary union would in time lead to

pressure towards greater fiscal and economic integration. We see measures like the single

supervisory mechanism as ones that derive from the currency union and not the existence of

a single market in financial services. That is why we have said we are staying out of a banking

union if that is defined in terms of the single supervisory mechanism and the associated

moves in the accompanying legislative framework.

The key distinction to make is that it does depend on whether you attribute a particular

proposal to the single currency or a single market. We are playing a part in the negotiations

on the structure of the banking union. Our problems with the current proposal of the

Commission, as I am sure the Financial Secretary said, are to do with the voting weights on

the European Banking Authority. The proposal on the table at the moment would give

21

eurozone members a near built-in qualified majority and impose a duty on them to come to

a common position before going to the EBA to vote on regulations affecting the EU 27.

There is also asymmetry in how the Commission proposes to treat binding mediation from

the EBA as it affects national regulators on the one hand and the European Central Bank on

the other. That needs to be sorted out.

To go to the broader question Lord Harrison posed, my senior colleagues, whether it be the

Prime Minister, Foreign Secretary or Deputy Prime Minister, made it clear again and again

that we want to see the eurozone stabilised. Whatever view individual Ministers in the

Government have taken in the past about British membership of the European Union, we all

accept and respect the sovereign decisions that those 17 countries have taken to commit

themselves to the single currency project. It is for them to work out exactly how to go

about that task, which raises very significant questions of a political character touching on

democratic accountability, not just economic questions.

Q37 Lord Harrison: Are we not a waning power? The fact of the matter is that in the

case of the eurozone that others will join, and particularly in the case of the banking union

which others of the outside 10 will join and adhere to the rules and regulations, we become

part of an ever-decreasing circle of friends to influence what is being done.

The de facto truth is that there will be decisions made inside with the UK outside and we

come in later under the umbrella of the single market. It is a political fact.

Mr Lidington: The problem is that to participate in something like the single supervisory

mechanism without joining the euro would not in any circumstances that I can see give us

the voting rights and political influence over the eurozone that full members of the

eurozone, quite rightly, enjoy. The decision boils down to whether or not the United

Kingdom joins the single currency. If we take a considered decision, which I certainly

support, to stay out of the single currency, certain things follow from that. Where I go along

22

with Lord Harrison is that at a political level the fact we have chosen not to join the single

currency means that we have to be particularly vigorous in showing both that we want it to

succeed but also that we have ideas to offer certainly in financial services, where for example

with Vickers and Liikanen we have done that, but that in other areas of the European Union

we continue not just to participate but to exercise leadership. I would argue that we

continue to do that with the single market, trade, climate change and foreign policy.

Q38 Lord Harrison: I am sure you will want to agree with your colleague Greg Clark

who in reply to these kinds of questions rightly said that it is a matter of the tone the United

Kingdom adopts when it speaks to its European Union partners, which I have to say at the

moment is sorely missing.

Mr Lidington: I would agree with the importance of tone. If Lord Harrison has not yet done

so, I would commend a reading of the Foreign Secretary’s speech to the Körber Foundation

in Berlin a week ago.

The Chairman: We will all turn to that, but, given the way the clock is ticking, I invite

colleagues to move on a little. Still within that important envelope of subjects, I turn to

Lord Trimble.

Q39 Lord Trimble: The Government appear to take the position that moves towards a

banking union are important in resolving the eurozone crisis. It seemed a bit disappointing in

that context, looking at the European Council outcome, that with regard to the single

supervisory mechanism it said that work on the operational implementation would take

place in the course of 2013, which does not seem to have any sense of urgency behind it,

particularly if one bears in mind—I am reading from paragraph 12—that it is only when an

effective single supervisory mechanism is established that the European stability mechanism

might then come in with a view to recapitalising banks. Is it not a rather leisurely way of

23

Mr Lidington: The reality is that all those 17 eurozone countries are democracies. Each

government is having to contend with a national parliament and public opinion. While we

could all agree economic logic points towards greater fiscal and economic integration if you

have a single currency and monetary policy, in a democracy you have to take account of the

political impact this has. Some of the compromises and sacrifices that would be involved in

moving to a full banking union will be very difficult for a number of participants in the single

currency. They are feeling their way towards that. Every conversation I have with Ministers

from those countries tells me there is no doubt about their commitment to the euro and to

do whatever they think is necessary to maintain and stabilise it and also to keep its current

membership. At the same time, they are having to cope with parliaments and electorates

that are very worried about what this might mean. With a country like Spain, there is the

concern that key economic policy decisions would be taken out of the hands of their voters

and determined in Berlin or Frankfurt. In a country like Germany or Finland, there is a fear

that mutualisation means they would have to shoulder an unlimited and indefinite liability for

the debts of others. I was in the Bundestag two weeks ago chatting to some MDBs. They

said to me, “Our voters do not like idea that they should work to 67 so that people in other

parts of the eurozone can retire much earlier.” That is how they see it; that is the political

reality, so I do not think it should surprise us that it is taking a bit of time for the EU 17 to

work towards what I think their governments agree is a necessary outcome.

Q40 Lord Trimble: It is interesting that you mention the Bundestag. I think I am right in

saying that Chancellor Merkel has said that, when the European stability mechanism comes

into operation, it will be applied only to future threats and that those countries which have

24

existing problems will have to have them resolved before this comes into operation. Is that

achievable?

Mr Lidington: That is for the ESM. As I understand it, she is saying that the ESM can be used

for new bank debt after it comes into force, not to deal with historic banking liabilities. I do

not like ducking questions, but that is really a matter for the governments of the eurozone,

and we just have to respect them in taking those decisions.

Q41 Lord Marlesford: In one respect we do have a very important role in implementing

the banking union, even though I accept that we are not going to be part of it, and that is

forming the rule book. The responsibility for the rule book is that of the European Banking

Authority, which is in London where clearly it should be and should remain. Recently,

Sub-Committee A took evidence in Brussels from Señor Andrea Enria who chairs the

banking authority. He expressed a lot of concern at the slow progress in creating the rule

book. The rule book is pretty fundamental. The way I see the rule book, in a rather naïve

way, is that it is to design a better mousetrap to catch successive generations of mice, so we

do not get into the same problems as before. The Commission has been very confused

between dealing with the problem that has already arisen and preventing it happening again;

in other words, supervision is what the banking union is about, but the rule book is what we

have responsibility for.

Mr Lidington: Yes.

Q42 Lord Marlesford: Are you able in any way to help speed up the formulation of the

rule book? I hope there is no danger as a result of our not joining the banking union of any

of them saying, “Well, the banking authority really should not be in London but perhaps

should be in Frankfurt.”

Mr Lidington: On the latter point, I would hope that too. On the first point, we would all

want to see the rule book completed as soon as possible. The rule book is made up of

25

individual legislative measures, whether regulations or directives, and those have to be

negotiated through the council and the European Parliament as well. From what I have

observed over previous measures like the AIFM regulation and banking supervision package,

I know that these are not only quite complex in technical terms, but they also touch upon

matters of significant national interest, not just here but in other member states. If I look

back to the negotiations early this year on CRD4, the German, French and Danish

governments, as well as ourselves, all had significant interests at stake in the details of that

particular measure, and it took quite a bit of time to thrash out a deal with which in the end

everybody was content. I am afraid that all of this is just a feature of the democratic process

and the slightly cumbersome legislative process of the European Union where you have

27 sovereign countries.

Q43 The Chairman: Perhaps I may say to colleagues at this stage that I have about 10

expressions of interest and we have about half an hour to go, so we all need to exercise a

degree of restraint.

Mr Lidington: I take that in the spirit intended.

The Chairman: This is not pointed out to the Minister or our next interlocutor who is

Lord Hannay.

Q44 Lord Hannay of Chiswick: The Prime Minister recently made some references to

the possibility of a common budget for the 17 eurozone countries. Unless he has become a

late convert to the idea of a transfer union, which I do not imagine he has, what does he

mean by a common budget? Surely, what is being talked about at the moment among the 17

is not an annual budget but a series of contingent liabilities in certain circumstances. Is it not

rather misleading, therefore, to talk about a budget of the 17?

Mr Lidington: President Van Rompuy referred in the summit guidelines to a fiscal capacity

for the eurozone. We have said that we are open to exploring that idea further and talking

26

to others. At this stage the ideas are undeveloped. I have talked about this to a couple of my

ministerial counterparts in other large member states. The sorts of ideas that they have in

mind are that to some extent it is a contingency reserve, but the purposes would be to

provide a buffer against external shocks but also—this might take us into more classic

budget territory than contingency reserve—to have a source of funds which could be used

to help with the implementation of structural reforms in those eurozone countries that

needed to take those through. If it were to take on that character, such a eurozone

arrangement would raise questions about possible overlap or duplication with structure and

cohesion funds. One would then need to sit down and have a conversation about what that

means for a multiannual financial framework for the EU of 27. It is at a very early stage and I

would be very surprised if this emerged this year as something concrete, but it is certainly

something I know that a number of eurozone governments are reflecting on seriously. We

will take a final view when we have greater clarity about what they have in mind.

Q45 Baroness O'Cathain: At the beginning of September I represented the Committee

at the Jobs for Europe Conference in Brussels, which was amazing. There were 300-plus

people there, and the initiatives came spilling out like Smarties from a bag. Looking at the

conclusions, I came away quite depressed about it because for everything people put

forward I could see euros or pound notes going out the other way. I look at the conclusions

of 18 and 19 October and see that they want labour mobility throughout the EU to be

facilitated, which will cost money, and that, “The European Council stresses the importance

of further developing the EURES job vacancies portal … increase and broaden the

participation of employment services across member states … vocational training schemes

… and to promote the reactivation of older workers.” That is fine; they are all marvellous

things, but reality is that all of them will cost money and nobody could give me any idea if

they had been costed and, if they had, what the sums were. What are your views on that?

27

Mr Lidington: I share Baroness O’Cathain’s view that those are all worthy objectives, but

they would need to be translated into concrete actions and be budgeted for. What that

question reinforces is the need for strict ceilings on overall EU spending; otherwise, the

accumulation of spending pledges on lots of worthy causes suddenly takes you into much

greater demands on taxpayers throughout Europe. As the Committee knows, there is a

European social fund. Our belief is that that should be used to complement domestic

programmes, and it could deliver better value for money. It should target the most

disadvantaged groups in society, not try to substitute for what is happening at national level

across Europe. We could also facilitate job creation through cohesion policy and much

better value cohesion spending, targeting it on where the bottlenecks to growth lie, whether

it is infrastructure or other areas of those economies. Above all, a well-worn British theme,

particularly under this Prime Minister, is that at the end of the day governments and

European Union institutions do not create jobs; they can help shape the conditions in which

businesses are able to create jobs. The agenda that will create jobs is one for European

competitiveness through deepening the single market, making regulation less complicated

and expensive for our businesses across Europe and negotiating more free trade agreements

with other parts of the world. Whoever wins in the United States next week, we have a

huge opportunity to press for a transatlantic EU-US free trade deal. Both Obama and

Romney are up for negotiation on that. That would be a potentially transformational

opportunity.

Q46 Baroness O'Cathain: Following on what Lord Marlesford said, there is a lack of

reality within the Commission. It is the Commission that is putting out all these headlines

about copper jobs, green jobs and white jobs. In the areas we are looking at there must be

groups of people, probably about 100 in each investigating each of these subjects. Do you

28

not think it would be useful to suggest that somebody should look root and branch at the

Commission itself and tell it not to be unreal and that we just cannot do it?

Mr Lidington: I do not want to damn everything the Commission does and says. Sometimes,

particularly on single market measures, it can be one of our best allies, but it would benefit

from a system of staffing that allowed more people to come in mid-career from other walks

of life, which is too infrequently the case at the moment. One reason I would like to see a

big cut in Heading 5, which is administration of the EU, is that having a severe cap on

numbers and salaries would start to force the Commission, as it forces domestic

government departments, to focus on the real priorities.

The Chairman: What I would like to do now is try to bracket one or two questions so we

can get all of them in. In this context of the single market Lords Dear, Harrison and

Tomlinson would like to come in. Perhaps each could put the question and the Minister can

give us one reply.

Q47 Lord Dear: In replying to Baroness O’Cathain’s question just now, it seemed to me

that the obvious point has been missed. In the world of business that I inhabit quite a lot, no

proposition is put forward on a board agenda unless the costings are attached to it. It is a

rigour one finds right across the banking sector, commercial sector and manufacturing

sector. Why not here? It seems to me that twice you have been asked and, if I may say so,

twice you have not addressed that point. There is a rigour that can be applied and which has

not been applied and should be applied that nothing is proposed unless minds have been

applied to what it would cost. From there one can go on to decide whether or not it is

affordable.

Lord Harrison: In terms of the single market, what does not cost money is for the United

Kingdom to be stroppy about establishing and ensuring a single market comes into play. That

is the reduction of 27 varieties of red tape and reducing regulation, such that UK business

29

can flourish within it. Why do you never talk about that as a bargaining counter when we are

talking about the budget? Let us hear you say, “This is the important thing, and we are going

to bargain with you in order to ensure that that happy circumstance comes about where

British business can be athletic in promoting what it can do”?

Lord Tomlinson: The Prime Minister and most members of the Government frequently

and correctly argue the case for completion of the single market, particularly in services. Do

we serve that interest best by appearing, as Mrs Theresa May appeared to do on the

Andrew Marr show the week before last, to flirt with the idea of questioning the freedom of

movement of labour?

Mr Lidington: Let me take those in turn. I completely agree with Lord Dear. There is a

difference between a conference of the sort Baroness O’Cathain attended and a particular

legislative measure, but the need for budgetary rigour is one of the reasons we always

campaign for much better quality impact assessments from all the EU institutions. The

Commission has raised its game; the European Parliament is starting to do so, but neither

the Parliament nor Council is where we need it to be. In the foreign and security policy

missions that come across my desk, I always try to ask questions about the budget and value

for money. It is right that every Minister in any department should be asking those questions

in a searching fashion.

As to Lord Harrison’s point, I am tempted to send him a very large volume of the speeches

by the Prime Minister and other Ministers over the past two and a half years about the

importance of smarter and less burdensome and complicated regulation at European as well

as national level and also council conclusions and decisions by the European Union that have

delivered some action. For example, the European Council has put pressure on the

Commission which has agreed to a commitment to exempt micro-businesses from all new

EU regulations as the default position, unless an evidence-based case is made for including

30

them. We think that needs to go further. The European Council has said it is now looking

forward to a further Commission communication in December to take stock of progress on

regulation and signal further action to be taken by the end of the current European

parliamentary cycle at the latest, including the follow-up action promised on the top 10 most

burdensome pieces of legislation for SMEs. The European Council conclusions also welcome

the Commission’s intention to withdraw a number of pending proposals and identify further

areas for the possible lightening of the regulatory burden.

It is sometimes a difficult and complicated process. One of the side-effects of the eurozone

crisis has been that so much of the finite time and energy of top leaders in the 17 and the

institutions is being spent on that. President Barroso said to me once that eight out of 10 of

his waking hours were spent on eurozone matters. The time left over for everything else is

so much reduced. We find that frustrating.

I can promise Lord Harrison that not only does that effort continue to be made but in this

we have allies, particularly but not only in northern Europe. The Spanish are pretty good in

terms of this agenda too. We will continue to do this. We have started to see results, and

we are determined to keep our ambitions high.

On Lord Tomlinson’s point, what the Home Secretary was saying in answer to a direct

question was that the balance of competences review, which the Committee may wish to

come on to, will invite evidence from many different parties. It is open to anybody to submit

whatever evidence they want, including on freedom of movement or any other aspect of EU

activity. In terms of freedom of movement the Government’s energies are focused on where

we see abuses of that principle and an interpretation of it, perhaps by the Commission in its

initiatives or perhaps by the European Court of Justice, that makes it easier for people to

travel around Europe in effect to claim welfare rather than to come and work, which was

the intention behind the creation of the principle of freedom of movement.

31

The Chairman: Moving quickly to Mali, we again have three questions, beginning with Lord

Teverson followed by Baroness Young and Lord Sandwich.

Q48 Lord Teverson: I was delighted that you were not reshuffled in the reshuffle. I am

sure you were not necessarily, but I am delighted you are still here. Moving externally, Mali

is an issue that is causing great concern. One of the roles of my Sub-Committee is to work

with the Defence Committee in the Commons as well as with France. The French

Parliament and ourselves are increasingly concerned by the situation with Mali and the fact

that with what was seen as a fairly stable and progressive regime the country fell apart, but

there are big implications in terms of terrorism and drug highways into Europe. It is a big

challenge where perhaps Europe can play a role. The first question is in the humanitarian

area, but I would like particularly to press you on what instruments the European Union has

in its hands uniquely and how it should perhaps put them together to come to a solution in

what everybody would agree is not an easy issue.

Q49 Baroness Young of Hornsey: My question follows on from that. Given there is a

necessity for some urgent action, how much progress do you see the EU as having made in

deploying a CSDP mission to Mali? What form is it likely to take and how effective is it likely

to be? Can you also say something about how action is being co-ordinated between all the

various actors not only from Europe but within the continent of Africa itself?

The Earl of Sandwich: I am sure you do not underestimate the amount of interest in this

country. I attended a crowded meeting in Parliament last week on Mali. I was quite

surprised. There is the amputation of hands and feet for not very big offences. I will leave it

there.

Mr Lidington: I was very content to stay where I am at the moment. In passing, I am now

half-way through visiting all the other 26 twice or more.

32

To go straight to Mali, the humanitarian response is important. There is an EU aid

programme for the Sahel of €183 million. Since 2008 the EU has spent €69 million in Mali on

things like food security, emergency aid and agricultural support. Collectively, we have now

asked Baroness Ashton to examine what other humanitarian measures or actions could help

reduce the effect of the current crisis in Mali. It is a desperate situation. We calculate that

more than 300,000 people have been displaced as a result of the conflict there.

Turning to the broader political and security issues, we have been working very closely with

France in particular on ideas for a CSDP mission. It is important that we get the scope of

that mission right. What was agreed at the Foreign Affairs Council on 15 October was that

we should authorise planning for a military-led CSDP mission, which would have as its

objective to rebuild and retrain the Malian army, so it would be the Malian forces that would

then take the lead in trying to put an end to the terrorist control of parts of their own

country.

There has been a recent EAS visit to Bamako to try to assess the needs of the Malian

military. We are awaiting the report of that visit. We also want to see a regional effort by

the African countries themselves. The United Kingdom supports ECOWAS efforts to

restore peace and stability in the context of an international military intervention force,

which was referred to in Security Council Resolution 2071. Clearly, this has to be something

where the African countries themselves take the lead.

Q50 Baroness Young of Hornsey: You are absolutely right. Part of the problem is that

ECOWAS is seen just as much as a foreign invader in some respects by the rebels. It is a

very complex situation where, even looking on the ground in Africa, using forces from

across Africa, whether it be ECOWAS or the African Union, does not solve the issue, does

it?

33

Mr Lidington: It does not solve the issue. If there is to be a military response, it is right that

that is done by a retrained and stronger Malian military rather than by importing soldiers

from outside the continent altogether.

The Prime Minister has appointed my House of Commons colleague Stephen O’Brien, the

former Development Minister, as his special envoy of the Sahel. Of course, that covers more

than Mali, but Mr O’Brien is treating Mali as his top priority. He was in Paris last week and

had a meeting with the French Foreign Minister and senior officials there about how we can

co-operate more closely to find the right answers to help Mali in these trying circumstances.

Q51 The Earl of Sandwich: Are we sharing intelligence with the French at a high level?

How much of a priority is that?

Mr Lidington: The Committee will forgive me. I cannot comment on those matters.

Q52 The Chairman: We will move on quickly to Romania and Bulgaria for our

penultimate line of questioning. Baroness Eccles and I both have questions on this. This

Committee is currently conducting an inquiry into EU enlargement, and we are looking

forward to hearing the Government’s position from you in due course on that. I do not

want to trespass on that inquiry, but, as a matter of historic record, in July the European

Commission published two critical reports on Romania and Bulgaria which gave quite a lot of

concern to members of this Committee. Only yesterday the Commission issued a further

warning to Bulgaria in very trenchant terms on its judicial independence. There have been

other parallel concerns about Romania’s public life, as you will be aware. In your view, are

both countries heading towards further critical monitoring reports, and what does it mean

for the transition process in those countries and maybe lessons to be learned for the future?

I will ask Baroness Eccles to ask her question at the same time.

Baroness Eccles of Moulton: We know that all EU Member States are expected to

behave like mature democracies. Probably the existing Member State, apart from Romania

34

and Bulgaria who are almost becoming old chestnuts in this subject, is Hungary. Setting aside

the problems that beset the eurozone countries, which we have discussed a great deal

during this session, it is worth thinking about what both the EU institutions and the Member

States themselves can do to make sure that standards in the judiciary and in the fields of

corruption, free speech, free press and so on can be maintained, and maybe if there is any

slippage in any of the countries there can be ways of trying to prevent the situation

becoming worse.

Mr Lidington: Let me deal first with Romania and Bulgaria and then turn to Hungary to deal

with the general principle Baroness Eccles talked about. I have not seen a draft of the

Commission’s December report. Our expectation has been that the Commission will not

produce a full report on Bulgaria in December. It will give a brief update but publish at the

same time a much fuller report on Romania. If that expectation is borne out by the reality,

that will indicate greater Commission confidence in progress in Bulgaria than in Romania.

It was a mixed picture in the last set of reports. There were some trenchant criticisms and

also some evidence that new institutions, like the Romanian anti-corruption agency and

Bulgarian National Audit Office, were performing strongly. What I know about Bulgaria is

that Ministers there are committed to delivering on the measures required of them under

the CVM. We have been working closely with the Bulgarian government, particularly in

lobbying to ensure that the Asset Forfeiture Act, which we regard as an absolutely central

element of reform, was taken through. We have given some targeted technical assistance to

the Bulgarians as well. For example, both the Home Office and Ministry of Justice here have

good contacts with their Bulgarian counterparts to try to help in terms of sharing expertise

and gaining knowledge of what we consider to be best practice.

The challenge in Romania has been not only the continuing problems identified in the July

report by the European Commission but the political crisis that broke in that country over

35

the summer. When that happened we talked very frankly in private with our Romanian

friends. The Foreign Secretary made a stop off at Bucharest at very short notice on a trip

from the Middle East to Vilnius. He had a private meeting with Prime Minister Ponta and

talked through some of these questions with him. The encouraging lesson from that crisis is

that, while it demonstrated the continued fragility of the reforms and the need for continuing

external support, the situation has now stabilised. The judiciary withstood the pressures it

was under; it did act independently and appropriately, and that should be acknowledged. All

political parties have now accepted the judgment of Romania’s constitutional court that the

referendum to impeach the president was invalid as it did not reach the quorum.

President Basescu has been reinstated despite the entrenched differences between himself

and the Prime Minister. The attention is now on legislative elections due on 9 December this

year. We need to continue to press for and support work towards achieving further reform.

In Romania we are coming up to the appointment of two key people: the Prosecutor-

General and the head of the anti-corruption agency. In Bulgaria there are appointments to

the Supreme Judicial Council. It is important that both countries demonstrate they are going

about this in a proper and independent fashion, and we shall be doing all we can to ensure

that takes place. In the conclusions of the last Council, it noted the July progress reports and

said that the CVM process would remain in place until the benchmarks had been met

satisfactorily.

On this broader point raised by Baroness Eccles, it is interesting that Hungary did respond

to the Commission’s pressure to look again and change some of its legislative proposals. We

have talked to our Hungarian friends about the concerns being expressed in London, and we

publicly endorsed the approach that the Commission was taking. That approach achieved

results. It is worth reminding ourselves that it is only 20 years since these newer Member

States threw off communism and, in three cases, broke free of soviet rule. One of the great

36

successes of the European Union is that in a short time it has entrenched habits of

democracy, human rights and the rule of law, but we must not get complacent. We are

working in places like Hungary and the Czech Republic. The UK is working with

Transparency International; we are co-operating closing with the embassies of Germany and

the United States on transparency and anti-corruption issues. In Croatia, we have worked

very hard with them on judicial reform ahead of EU accession; and the Council of Europe

has an important role to play here too.

One of the biggest lessons from experience of Romania and Bulgaria is that we need to look

again at the accession process. The one thing everyone would agree on round the council

table, including the Romanians and Bulgarians, is that the outcome in their cases has been

profoundly unsatisfactory. It has left Romania and Bulgaria feeling that they are being treated

as second-class members of the EU, and a number of the longer-standing member states feel

that they were admitted without the benchmarks being met. That is a very unhappy

situation. It is right that the CVM remains in force, but the sense in Sofia and Bucharest that

they are under tutelage is not healthy either.

What Commissioner Füle has done, with our very strong encouragement, is adopt a

reformed approach to accession which will deal upfront with all the measures in Chapters

23 and 24 to do with human rights, judicial and administrative reform, anti-corruption

measures and institutions. Montenegro is the first test case of this. In Montenegro those are

the first chapters that will be opened, and I anticipate they will not be closed until pretty

near the end of the accession process.

The idea is that not only do we tackle those early but by doing so upfront we give the

candidate country the opportunity to establish a track record, not just introduce legislative

changes. One of the arguments we had in Council over Croatia a year ago was when people

said that Croatia had brought in all these changes, judicial appointments and so on, but we

37

had not yet seen how it had worked out in practice over a number of years, and that the

lessons have not just been learned; they have been applied. We have changed the accession

process to try to make sure that in future we do not run into the sort of difficulties there

have been over Bulgarian and Romanian accession.

Q53 Baroness Eccles of Moulton: Would you agree that the contrast between the

hurdles that Romania and Bulgaria had to cross to accede and what Croatia has had to go

through is immense, and is that fully appreciated?

Mr Lidington: I do not think it is fully appreciated, and it is true. The conditions for

Montenegro because of this change are going to be tougher still. I think that is right in

principle and also necessary to counteract the resistance to further enlargement, which you

certainly find in a number of European capitals, at a time when I continue to believe that

inclusion of the Western Balkans and Turkey in the European Union is of prime importance

for our mutual security and stability on the continent. It is unfortunate that we risk getting

into a situation where Romania and Bulgaria are still subject to the CVM but Croatia has

come in as a new member state and is not subject to such an arrangement. That is already

causing a certain amount of grievance in Bulgaria and Romania.

Q54 Baroness Eccles of Moulton: But it might make them pull up their socks.

Mr Lidington: I have said to Ministers in those countries that the sooner they can

implement all the measures that need to be done the better, because the sooner the CVM

can be removed the better.

The Chairman: There is one final line: the balance of competences review. I will leave

Lords Bowness and Hannay to share the honours on that one.

Q55 Lord Hannay of Chiswick: This is just the justice and home affairs part of the

balance of competences; it is not a general question. We had a very helpful letter from you

about the general question. On JHA, depending on whether you believe the prime ministerial

38

version or the Home Secretary’s version, we have already taken the decision to opt out, but

that is not the point of my question. What does puzzle us is how you fit that into the fact

that the balance of competences review on police and justice is not going to take place until

2014; that is to say, after the horse has bolted.

Lord Bowness: On a rather narrow point, the statement talked about measures which

were operationally useful, less useful and defunct. A reply to my Sub-Committee colleague

Lord Rowland’s written question was that “The Ministry of Justice was … continuing to

analyse all the measures within the scope of the decision. It is not possible at this time firmly

to conclude which measures are operationally useful, less useful or defunct, as we are still

consulting with operational partners, the European Commission and other member states.

This information will be crucial so that we can come to an informed view as to which

measures are defunct.” With great respect, there is a conflict between the position you

were minded to adopt and what appears to be the fact.

Mr Lidington: Let me seek to throw some light on this. The 2014 decision is embodied in

the Lisbon Treaty. By May 2014, we must notify the Commission as to whether we are going

to stay in all the pre-Lisbon third pillar measures, which means accepting that ECJ

jurisdiction applies from that moment on, or opt out. If we opt out, we are entitled under

the treaty to apply to opt back into a selection of those measures, but we do not have the

automatic right to do so; it has to be agreed with the Commission and other Member States.

Under the treaty we do not have the right to decide to stay in a selection; we can be

selective only if we exercise a full opt out as the first stage. The Government’s position is

that they are minded to exercise the mass opt out with a view to opting back in.

To deal with two points raised by Lords Hannay and Bowness, on the timing of it and how it

fits with the balance of competences review, frankly I would have preferred us to have been

able to announce the decision on the 2014 opt out a bit earlier, but there were various

39

reasons, not least diaries and parliamentary business, which meant that was not possible. We

have to notify the Commission by May 2014 and must have implemented everything by the

end of 2014. If you count back, since we are minded to exercise the opt out and partial opt

back in, that means a negotiation. A year and a bit is quite a short period of time for

European negotiation, even before you take into account two Christmases, one summer

break, a German election and a eurozone crisis that will preoccupy people. An

announcement now gives us the opportunity for the sort of negotiation that we need to

have. The balance of competences is a separate exercise and does not arise from Lisbon, but

the 2014 decision has to be made within a set time frame. The balance of competences will

look at every aspect of how the EU impacts upon home affairs and justice, as well as every

other aspect of policy. We have opted in to a number of post-Lisbon measures and opted

out of others. For example, it is open to people to express their views on that as well as on

the 2014 decision.

To come to Lord Bowness’s point about content, it is not as straightforward as the

Government simply presenting a list and saying these are the things they want to opt back

into. In part, because it is a negotiation, one just does not want to disclose one’s hand in

public. But there is a practical negotiating issue here. When I discussed this with

Commissioner Malmström she said, ‘You have every right to do this under the treaty, but of

course we may think in Brussels that measure A that you wish to opt back into is so closely

connected with measure B that you need to take a decision about the two as a block and

not act differently on them.” She also reminded me, quite properly—it is in the treaty—that

where we choose to opt out and stay out and that imposes costs upon other member

states, they are entitled to expect us to compensate them for those costs. In the equation

that the Home Secretary and Justice Secretary will be weighing up that may have a bearing. It

is not possible at the moment to come forward with a detailed list, but I know that the

40

Home and Justice Secretaries will wish to provide greater clarity as soon as they are able to

do so.

Q56 Lord Bowness: I will not pursue it, but it still seems rather strange that one can be

minded to exercise an opt out when one does not know any of the many things that you

have just been outlining.

Mr Lidington: You cannot know those until you get into the negotiation. The signal we had

from Brussels was that until we announced a decision in principle about how we intended to

proceed we could not embark on those detailed discussions.

Q57 Lord Hannay of Chiswick: But, surely, what Commissioner Malmström said to you

underlines the fact that when you come to Parliament for the approval of the two Houses it

is going to be absolutely essential that, at the same time, you are able to tell us which

measures you are minded to opt back into and what the reaction of the institutions is likely

to be; otherwise, I do not see how we can take a decision in full knowledge of the facts.

Mr Lidington: We have committed ourselves not only to a debate and vote in both Houses

on the Government’s decision but also to consult Parliament, this Committee, the

Commons European Scrutiny Committee and the relevant Commons departmental Select

Committees about exactly how that debate and vote—its timing and its scope—should be

handled. I do not want to pre-empt the outcome of that consultation.

Q58 Baroness Eccles of Moulton: Is it possible after 2014 piecemeal to opt back into

some that we have already opted out of?

Mr Lidington: No. The absolute deadline set in the treaty is that for the pre-Lisbon third

pillar measures either we come out of all of them and have opted back in with a selection

through negotiation by the end of 2014 and notified the Commission of the detail by May, or

we have got to opt out of all of them and stay out of all of them, or stay in all of them. That

flexibility no longer applies after 2014. What does apply is our choice under Lisbon to all

41

post-Lisbon measures, including post-Lisbon measures to amend pre-Lisbon measures, as to

whether or not we wish to take part in those. There are two stages in the negotiation of a

JHA measure. We can opt in if we choose right at the start. If we choose not to do that we

can sit at the table and take part in the discussions, and then we have a further chance to

decide whether to opt in when a final text is agreed. The Irish have the same right as us; the

Danes are completely outwith the scope of Title V.

Q59 Baroness Eccles of Moulton: At one stage the door closes and that is it.

Mr Lidington: On the pre-Lisbon third pillar measures, 2014 is the end date. At that point

the third pillar ceases to exist. Tom, do you want to add something?

The Chairman: It is important we get this on the record.

Thomas Barry: We should probably write to the Committee explaining exactly the terms

under which we would be able to reapply, and whether it relates to a block or individual

measures.

The Chairman: That is helpful. Minister, I was going to say at this point, when members of

the Committee are still engaged and anxious to ask further questions, that if I sound at all

perfunctory in thanking you it is simply a function of the fact that you have been very full and

frank, as you always are, in answers to us. That is greatly appreciated. You will be well aware

of the range you have had to engage in this afternoon, and in all of which you have shown

your enthusiasm, competence and explicitness. The Committee is very grateful for that and

looks forward to a continuing constructive relationship and dialogue in the spirit of this

afternoon.