The House of Lords EU Committee have today written to Greg Clark MP, Financial Secretary to the Treasury, ahead of the Spring European Council on 27-28 June to stress the need for the UK to “get on the front foot” and play an integral role in the construction of a ‘Genuine Economic and Monetary Union’ (GEMU).
Commenting Lord Harrison, Chairman of the House of Lords EU Sub-Committee on Economic and Financial Affairs, said:
“The Commission has recently stated that it is now seeking only to dilute, rather than break, the vicious circle between banks and sovereign states that has done so much damage during the financial crisis. We are concerned that the proposals for banking union are being watered down, and are worried that this will undermine efforts to secure the much-needed stability of the banking sector.
“This week’s European summit is vital. Yet all too often the UK appears to find itself on the back foot in these negotiations. Whilst the Government has made clear that the UK will not participate in GEMU, it is imperative that it plays an integral role in its construction as discussions in Council progress.”
In their letter to Mr Clark the Committee conclude that:
- There has been significant back-tracking on the banking union proposals recently. The Commission Vice-President, Olli Rehn, has shifted emphasis from “breaking” the link between banks and sovereign states to merely “diluting” it. Meanwhile, a Franco-German pre-Council paper appears intended to water down the Commission’s model still further.
- The Committee fears that, as a result, the vicious circle between bank and sovereign debt remains intact, with the potential to undermine the stability of the banking sector. It asks the Minister if enough is being done to avoid a false sense of security amongst EU leaders.
- The approach taken across the EU so far does not do enough to deal with the fundamental problems of European economies. They stress the need to ensure that proposals for long-term reform do not distract from the urgent action required to restore competitiveness and economic growth to the EU. The Committee are not convinced the Convergence and Competitiveness Instrument will be an effective response, particularly as it is not clear how these contracts will be enforced.
- The Government have made clear that the UK will not participate in GEMU. Yet given the implications both for the UK and the single market, the Committee stress the need for the Government to play an integral role in discussions at the EU Council.
The Committee’s letter sets out their emerging conclusions from an inquiry into proposals for Genuine Economic and Monetary Union as well as building on their previous report on plans for a European Banking Union. The Spring European Council later this week will be an important forum for taking forward the vital proposals for economic reforms in the EU including plans for Genuine Economic and Monetary Union. The Committee are writing to the Minister to ensure their concerns are clear to him ahead of the Council.
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