Britain in Europe

The national interest is for Britain to be in Europe, not run by Europe. That is why Conservatives want to get powers back from Brussels to Britain, particularly over social and employment legislation. We also need to make sure that there is no further transfer of powers from Britain to Brussels without the say of the British people. Thats why for the first time ever this Government has introduced a referendum lock which means that any transfer of powers from Britain to Brussels would require the approval of the British people in a referendum. An in/out referendum or a confusing and unclear three way referendum does nothing to advance these objectives.

Issue

Backbench debate on EU referendum. On Monday 24 October 2011 the Backbench Business Committee have agreed to hold a debate on David Nuttall MPs motion on holding an EU referendum. The motion says: This House calls upon the Government to introduce a Bill in the next session of Parliament to provide for the holding of a national referendum on whether the United Kingdom should: (a) remain a member of the European Union on the current terms; (b) leave the European Union; or (c) re-negotiate the terms of its membership in order to create a new relationship based on trade and co-operation (Backbench Business Committee; David Nuttalls Website).

Key Facts The value of the EU Single Market to the UK. The Single Market is vital to the UKs prosperity: o The EU gives UK business access to the worlds largest market. The Single Market gives UK business access to the worlds largest market with 500 million people generating about 10 trillion of economic activity (BIS, The UK and the Single Market: Trade and Investment Analytical Papers 4, 2011). o European markets account for half of the UKs trade and foreign investments, providing around 3.5 million jobs. In the year to July 2011 the total value of the UKs trade in goods exported to the EU was 92.7 billion. (HMRC, UK trade info, 1 July 2011,link), compared to 77.4 billion for exports to countries outside the EU (HMRC, UK trade info, 9 September 2011, link). Around 3.5 million jobs in the UK are linked to the export of goods and services to the EU (BIS, The UK and the Single Market: Trade and Investment Analytical Papers 4, 2011). o The Single Market may have added income gains of up to 3,300 a year for each British household. EU countries currently trade twice as much with each other as they would do in the absence

of the Single Market. As a result, the Single Market may be responsible for income gains in the UK of between 1,100 and 3,300 a year per British household (ibid.). Key dates.

o 1957: Treaty of Rome. The treaties established the European Economic Community, and four institutions the European Commission, the Council of Ministers, the European Parliament and the European Court of Justice. The original six members were France, West Germany, Belgium, Luxembourg, the Netherlands and Italy. o 1961: First UK attempt to join the EEC (vetoed by De Gaulle in 1963). o 1967: De Gaulle says No to UKs second attempt to join. 1973: The UK Joins the EEC on 1 January 1973. 1975: The UK votes in a national referendum to stay in the EEC. 67 per cent vote yes on 6 June 1975. 1986: The Single European Act establishes the single market. 1992: The Maastricht Treaty. The treaty created the legal basis for the creation of Euro (UK opts out) and the moves towards foreign policy, military, criminal justice and judicial cooperation. The three pillars set out where the EEC did and did not have competence. UK secures opt out from the Social Chapter. 1997: Treaty of Amsterdam. UK subscribes to the Social Chapter. The Schengen Agreement on free travel is incorporated into what became the EC (with an UK opt out). More EU power over foreign policy and justice and powers for the European Parliament. William Hague calls for a referendum on the treaty. 2001: Treaty of Nice. Further centralisation and changes in voting weights to allow for enlargement. (Irish vote No in 2001 and Yes in 2002). William Hague calls for a referendum on the treaty. 2004: Ten new former Communist states join EU. 2004: Treaty establishing an EU Constitution signed. 2005: France and Netherlands vote No to the EU Constitution. 2007: Romania and Bulgaria join EU. 2007: Lisbon Treaty signed by Gordon Brown. David Cameron continues call for a referendum. 2008: Ireland votes No to the Lisbon Treaty. 2009: Lisbon Treaty comes into force. This leads to the abolition of vetoes and more power to the EU in a manner virtually identical to the EU Constitution. The Czech President signed the Treaty on 3 November 2009 and David Cameron set out the Conservative Party response to the treaty coming into force on 4 November 2009 (David Cameron, A Europe you can believe in, link). EU bailout funds. There are two current European funds - the European Financial Stabilisation Mechanism (EFSM) and the European Financial Stability Facility (EFSF). We are a member of the EFSM only. Both funds were agreed by Alistair Darling at ECOFIN on the weekend of 8 9 May 2010. The UKs involvement with the EFSM will end in 2013 (Hansard, 28 March 2011, Col. 35).

Our Approach

Introduced a Referendum Lock. Many people in Britain feel disconnected with how the EU has developed, and the decisions that have been taken in their name. Our European Union Act, which came into force in July this year, ensures that in future the British people will have their say on any proposed transfer of powers from the UK to the EU. Under the Act, if in the future a change to the EU treaties that moves powers or areas of policy from the UK to the EU is proposed, the Government will have to get the British people's consent in a national referendum before it can be

agreed. Furthermore, the Act provides that an Act of Parliament will be required for all types of EU treaty change, including agreement to the use of ratchet clauses in the Lisbon Treaty which allow the powers of the EU to expand in the future without a new treaty. Any ratchet clauses which would transfer powers or areas of policy from the UK to the EU would also be subject to the British peoples consent in a referendum (European Union Act 2011). Ensuring the sovereignty of Parliament. The EU Act also includes a sovereignty clause which ensures that ultimate authority remains with the British Parliament by underlining the principle that EU law only has effect in the UK through UK Acts of Parliament and not through any independent authority (European Union Act 2011). Ending UK participation in EU Bailouts. We have secured a commitment that the 50 billion European Financial Stability Mechanism (EFSM), which provides loans to EU member states in financial difficulties, will come to an end in 2013. Alistair Darling signed the UK up to the EFSM in May 2010 before this Government took office, meaning that the UK has been liable to bailout EU countries through its share in the EU Budget. The Chancellor, George Osborne, specifically objected to Alistair Darlings decision and now, thanks to tough negotiation, our participation will end in 2013 (Hansard, 28 March 2011, Col. 35). Keeping the EU Budget under control. We will strongly defend the UKs national interests in the forthcoming EU budget negotiations. The EU budget should only focus on those areas where the EU can add value. o Annual increase halved in the EU 2011 Budget. We have no veto over yearly budgets, however this Government succeeded in winning agreement from enough other EU Governments to cut the annual increase in the 2011 EU Budget to half that agreed by Labour in the 2010 Budget (BBC News, 29 October 2010). o A real terms freeze in the EU 2014 2020 Budget. Thanks to this Governments leadership, Britain, France, Germany, the Netherlands and Finland have already signed up in public to a keep the next EU multi-annual budget to a real terms freeze (Letter from EU leaders to the European Commission, 18 December 2010). Using the EU to further Britains national interest. The Government active and energetic engagement is delivering concrete results in the EU that are in the UKs national interest: o Sanction on Iran. We have secured agreement on tough, targeted EU sanctions on Iran (BBC News, 26 July 2010). o Sanctions on Syria. We have argued for and achieved tough EU sanctions on Syrian oil exports to the EU and on regime officials (BBC News, 19 August 2011). o Trade with South Korea and Pakistan. On 6 October 2010 we secured agreement by EU Governments on a Free Trade Agreement between the EU and South Korea, worth 500 million a year to the UK (BIS Press Release, 6 October 2010). The EU has also agreed to liberalise trade with Pakistan (BBC News, 16 December 2010). o Jobs and Growth. On the 18 March 2011 David Cameron and leaders from eight EU countries wrote to President Van Rompuy and President Barroso calling for a new direction of economic policy. The UK subsequently published its proposals to improve EU economic competitiveness. Much of this was agreed by the EU Council (HM Government, Lets Choose Growth, 31 March 2011). The Government has also defended the UK financial industry by delivering a deal giving hedge funds access to all markets across the EUs 27 member states in return for signing up to common rules set by the new European Securities and Markets Authority, which regulates the EUs financial system (BBC News Online, 19 October 2010).

 Limiting the ambitions of the EU Foreign Ministry. The EU External Action Service (EAS), the EU Foreign Ministry, was created under the Lisbon Treaty which the last Labour Government agreed to. We were left in a position where we were unable to prevent it coming into existence. However, through active participation in the formation of the institution we managed to limit its size, scope and cost and, crucially, ensure that it remained under the control of the member states and not the European Commission or Parliament. We are assiduously policing the creep of EU competence in this and other areas. Justice and Home Affairs opt ins. We have committed to make a written statement to Parliament if we decide to opt in to an EU Justice and Home Affairs matter to ensure that Parliament is fully informed of the Governments decision and the reasons for it. Where appropriate and necessary, this statement may be made orally to Parliament. Parliament should have the right to give its view on a decision of such importance. The Government will; therefore commit to a vote in both Houses of Parliament before they make a formal decision on whether they wish to opt-out (Hansard, 20 January 2011, Col. 51WS). Not joining the Euro. We do not wish to join the Euro and we will ensure that Britain neither joins nor prepares to join the Euro in this Parliament. With this in mind, the Euro Preparation Unit in the Treasury has been abolished (Hansard, 22 June 2010, Col. 169). The idea that we could join the single currency without a closer fiscal union was always a huge mistake and the current situation in the Eurozone fully vindicates this. However, it is important that the Eurozone is stable and healthy; a disorderly breakdown of the Eurozone would be highly detrimental to the British economy. Eurozone countries need to get Euro to work. We are backing those countries that want to make the Euro work because that is in our interest. 40 per cent of our exports go to Eurozone countries and 50 per cent of our exports go to European Union countries as a whole. Successful Eurozone economies are clearly in our interests. A cold look at the facts shows that a disorderly break-up of the Eurozone and disorderly debt defaults would have a very bad effect on the British economy (David Cameron, House of Commons Liaison Committee, 6 September 2011). Supporting Enlargement. We are arguing for an outward looking EU open to new members that meet the accession criteria. Enlargement of the EU is in Britains interest and we will continue to be an active advocate of candidate states.

o Turkey. Turkey could be a great European power, helping to build links with the Middle East and contributing to the single market. We want Turkey to join the EU as a full member. However, Turkey will first have to meet the Copenhagen accession criteria on human rights and governance and meet concerns on migration. Turkish membership of the EU could provide great benefits to both sides and we need to keep making the case for Turkey in order to convince those EU countries which are opposed to full Turkish membership. o Ukraine. We do not rule out Ukraine or other countries joining. One good thing which has resulted from countries wanting to join the EU is that they have taken steps to open up their economies and political systems.

Political points to make Labour broke their promise to give the British people a referendum on what was to become the Lisbon Treaty. In their 2005 manifesto Labour said: [the Constitutional treaty] is a good treaty for Britain and for the new Europe. We will put it to the British people in a referendum and campaign whole-heartedly for a Yes vote (Labour Party, Manifesto: Britain forward not back, 2005,

p.84, link). But Labour failed to hold a referendum on the Treaty and denied the British people a say. Our referendum lock aims to make sure this can never happen again. Labour opposed the European Union Bill in Parliament. Labour opposed the European Union Bill at its second reading in the House of Commons and instead voted for a Labour amendment to stop the Bills passage through Parliament. Labours amendment said: this House declines to give a second reading to the European Union Bill on the grounds that, while the principle of referendums on significant constitutional and monetary changes is appropriate, the Bill is a flawed measure which would confuse the important issues at stake and make vital constitutional issues justifiable by the courts rather than resolved under the sovereignty of Parliament (Public Whip, European Union Bill: Second Reading, 7 December 2010). Labour MEPs failed to vote against the EU budget being financed by an EU tax. Labour MEPs failed to vote against the budget being financed by new own recourses, in other words an EU tax (European Parliament, Amendment 1025 General Budget European Union 2011, 20 October 2010, link). Labour MEPs voted against a 2011 Budget freeze. Labour MEPs voted against a Conservative amendment to freeze the 2011 EU Budget at 2010 levels (European Parliament, Amendment 12 A7-0284/2010, 20 October 2011, link). Labour MEPs opposed cost saving measures to stop MEPs using first class travel and freeze MEPs expenses and salaries. Labour MEPs either abstained or voted against cost saving proposals to make MEPs fly economy class and freeze MEPs salaries and parliamentary allowances (European Parliament, Amendments 3, 14 and 15 A7-0087/2011, 6 April 2011, link). Labour MEPs supported new EU taxes. The Leader of Labours MEPs and seven of her colleagues signed up to the Lets Change Europe campaign. Among other things the campaign calls for the basis of a common European fiscal policy to ensure fair, efficient and lasting receipts (Lets Change Europe, 1 June 2011, link). Labour MEPs voted to scrap Britains opt out from the Working Time Directive, which would cost the UK billions. Labour MEPs defied their own party and voted to vote in the European Parliament Committee to scrap Britains opt out from the Working Time Directive, which means that individuals can choose to work more than 48 hours a week if they choose, on 5 November 2008 and again on 17 December 2008 (BBC News, 5 November 2008, link; 17 December 2008, link; The Telegraph, 5 November 2008, link). Labour themselves have admitted that scrapping the opt out would cost the UK billions in both cost to industry and loss of earnings (Hansard, 20 January 2009, Col. 1324W). A Labour MEP claimed that the Euro crisis vindicated the case for Britains membership of the Euro. Labour MEP for London, Mary Honeyball, said: The crisis of the euro has shown in very graphic terms that the UK is in Europe and cannot ignore what happens in other EU member states when it comes to their economiesI have always been in favour of joining the single currency and, I must say, am once again beginning to feel vindicated that my point of view is the best one for our country (Mary Honeyball MEP, Blog, 23 November 2010).

Hostile Questions Q: Why are you imposing a three line whip? The 2010 manifesto, on which Conservative MPs were elected, did not advocate withdrawal from Europe or an in/out referendum. It is not Conservative Party policy. Similarly, the Conservatives are clear that we should bring back powers from Brussels to Britain so what

we need is a Conservative majority government, not an in out referendum or a confusing three way referendum. Q: Why is the Government interfering in back bench business? This Government introduced the Back Bench Business Committee to enable back benchers to bring forward important matters. Similarly, we have enabled debates on public petitions. But it is right that political parties express their position on what is being proposed. Q: Whats wrong with having a referendum on renegotiating Britains relationship with Europe? Britains interest is in being in Europe but not run by Europe. Conservatives are clear that we should get powers back from Britain to Brussels so we dont need a referendum on that, we just need a Conservative majority government. Referendums are useful in preventing the transfer of powers. Thats why we have introduced a referendum lock that will ensure the British people have their say on any further transfer of powers from Britain to Brussels. Q: Why have you moved the date of the debate? The Foreign Secretary respects the fact that this is an important debate and as it is his area of responsibility. He is here on Monday but not on Thursday as he is required by The Queen to be present at the Commonwealth Heads of Government Meeting. Q: Why wont you let the British people have their say? The British people should have their say on any further transfers of power from Britain to Brussels. Thats why this Government has introduced a referendum lock that guarantees for the first time ever the British people a referendum in these circumstances. An in/out referendum would be a false choice: it wouldnt give a choice to the mainstream of British opinion who want to be in Europe, not run by Europe and want to see powers brought back. We all agree on that and, to be fair, the motion tries to deal with that. But a three-way referendum would be so confusing and unclear three way choice its very hard to see how it would resolve anything. If we want to see powers brought back from Brussels the answer is a majority Conservative Government. Q: What concessions do you think we should seek from Europe in return for the closer integration that will occur as a result of the Eurozone crisis? We want to see a prosperous Eurozone. Forty per cent of our trade is with the Eurozone so it is strongly in our own national interest to support Eurozone countries in dealing with their problems. No-one is talking about a major treaty. But, if a treaty change is imposed beyond what has already been proposed, we are clear that Britain will not be part of it. It is crucial that Britains interests on financial services, on the single market, on competition are protected, that were not outvoted by the eurozone and that there is not an inbuilt eurozone caucus in the system. We are in a Coalition, however there is no doubt about the long-term orientation of the Conservative Party. We would like to see powers returned from the EU to the United Kingdom. We are always on the look-out for opportunities to advance our national interests. Q: Can we use the Euro crisis to renegotiate a better deal for Britain? It is strongly in our own national interest to support Eurozone countries in dealing with their problems. No EU government is currently proposing any further change to the EU treaties but we are always on the look-out for opportunities to advance our national interests. Q: If we have a new treaty for the Eurozone will it be subject to the referendum lock? All treaties will be subject to all the referendum tests in the Bill. However, the current proposals are for a Eurozone only treaty which would not apply to the UK and so would not require a referendum. The Government will not sign up to any treaty which hands over power from Britain to the EU.

Q: Over a hundred Conservative MPs have joined a new Eurosceptic group. Will the Government listen to them? Is this a split? As we have said, there is no doubt about the long-term orientation of the Conservative Party. We would like to see powers returned from the EU to the United Kingdom. The members of this group want to see a shift in Britains relationship with Europe. We are always pleased by good, healthy, democratic debate. They are not approaching the issue in a confrontational spirit. Q: Why are you letting the Liberal Democrats push their pro European agenda? We wanted a Conservative government. We would have liked to have pursued some of the things on Europe on which we have had to compromise because the two parties have different approaches. The key point of difference in our manifesto was the aim to repatriate some powers. Clearly that is something we are in favour of, but is an area we had to compromise on. Nevertheless, there should be no doubt about the long-term orientation of the Conservative Party. We would like to see powers returned from the EU to the United Kingdom. Q: Why is the EU so unpopular in the UK? It is true that there is a sense of disillusionment about the EU among the British people. Many people in Britain feel disconnected with how the EU has developed and the decisions that have been taken in their name. The Labour Government only served to deepen this feeling, breaking its promise to hold a referendum on what became the Lisbon Treaty. We have now introduced a referendum lock to ensure that in future the British people will have their say on any proposed transfer of powers from the UK to the EU. Q: Can a future Government repeal your referendum lock? Without reworking our whole unwritten constitution, we cant guarantee by law that a future Government wont repeal the EU Act. However, any future Government would have to go through a lot of political pain to undo it. Q: Can we get a fair deal in the EU Budget 5 year (2014 2020) Multiannual Financial Framework negotiations? The negotiations are at a very early stage. The Commission proposals were published in June 2011 and are unacceptable. We have been clear that at a time of ongoing economic fragility in Europe and tight constraints on domestic public spending, the Commissions proposal is unrealistic. It is too large; it is not the restrained budget they claim and it is incompatible with the tough decisions being taken in countries across Europe. Q: Why not have a referendum on the EU Budget? We cant change the EU Budget by having a referendum, so that would not achieve anything. But weve been doing everything we can to ensure that any rise is as small as possible. It is right that our Government fights hard to get a good deal and that is what they are doing by gaining French and German agreement to a freeze in the next 5 year budget deal. Having a referendum on the budget, would be costly and could make agreement impossible. Q: What about the European Court of Human Rights? Well, that is separate from the EU. People do try to exploit it but Britain will become chairman of the Council of Europe and we will promote the case for reform. We have also launched a Commission to investigate the case for a UK Bill of Rights that protects and extends British liberties, incorporates and builds on all our obligations under the European Convention on Human Rights, and ensures that these rights continue to be enshrined in British law. The Commission has a very important role to play in examining the operation of the European Court of Human Rights and how we implement human rights in the UK. We expect the Commission to inform the debate on human rights at home and assist us as we continue to press for reform of the Strasbourg Court. Q: What about EU proposals for economic data sharing and economic sanctions?

Eurozone countries are likely to be subject to new rules about how they run their economies and sanctions if they dont keep them, but they wont apply to us. For Britain the only differences are some new rules on information sharing. We will send a broader set of data over to Brussels for peer review, but only after its been given to Parliament. Its very similar to what already happens with the IMF and OECD.

Q: Can we push for more EU deregulation?

Europe has got to earn its way. The world doesnt owe us a living. Europe as a whole needs to face the future with confidence and launch a major drive to deregulate business because we cannot go on loading costs onto business. We believe EU leaders should commit to scrapping one regulation for each new one imposed, as well as reducing the regulatory burden overall. We have support for deregulation in Europe. We have drafted a pamphlet calling for it called Lets Chose Growth and a number of states have signed up - not just obvious allies like the Czech Republic and Sweden, but Germany, the Netherlands, Denmark, Finland and the Baltic States.

Eurozone
The situation with the world economy is very precarious. The Eurozone is probably contributing more to that uncertainty and lack of confidence than anything else. It must work properly or confront its potential failure. Britains national interest would not be served by the Eurozones break-up. Earlier this month, George Osborne travelled to a meeting of European Finance Ministers in Luxembourg. He was clear that the Eurozones financial fund needs maximum firepower. That the Eurozone needs to strengthen its banks. And the Eurozone needs to end all the speculation, decide what theyre going to do with Greece, and then stick to that decision. Britain is not immune to all this instability. Indeed, the resolution of the Eurozone debt crisis is the single biggest boost to confidence that could happen to the British economy this autumn. The time to resolve the crisis is now.

Latest developments
EU leaders to hold summit. EU leaders will hold a summit on Sunday 23 October 2011. The meeting had been scheduled for 17-18 October, but was delayed because more time was needed to finalise a plan to give money to Greece and bolster debt-laden banks (BBC News, 20 October 2011). Merkel and Sarkozy hold emergency meeting. On 19 October 2011, French President Nicolas Sarkozy travelled to Berlin to hold talks with German Chancellor Angela Merkel, the IMF and other officials. The emergency talks were aiming to break the stalemate between Germany and France over how to increase the firepower of the eurozones bailout fund, the European Financial Stability Facility (EFSF). After the meeting, Sarkozy was reported to have said that the two countries were at odds over a rescue plan (BBC News, 20 October 2011). General strike in Greece. On the 19 and 20 October thousands of demonstrators gathered outside Greeces parliament during a general strike. The 48-hour general strike involved workers in virtually every sector of the economy. The details of the second rescue plan have yet to be finalised. Banks have agreed to take a 21 per cent loss, or haircut, on their loans to Greece but there is

growing pressure for them to accept higher losses (BBC News, 20 October 2011). Spain credit rating cut. On 18 October, the ratings agency Moodys cut Spains credit rating by two notches, two days after Standard & Poors took the same decision. Moodys said it had cut the rating because there had been no credible resolution to the eurozone debt crisis (BBC News, 18 October 2011). G20 finance ministers says the EU summit will be decisive. The French Finance minister said that the EU summit would give clear answers, at the end of talks between ministers from the G20 group of nations in Paris. He said central banks would continue to supply banks with liquidity. The G20 statement also said ministers were committed that the IMF must have adequate resources. Details of the rescue plan discussed in Paris include a bigger write-down than previously expected of Greek debt, a much more powerful European bailout fund and a re-capitalisation of weaker banks to arm them against inevitable losses. The plan needs to be finalised by the EU summit in Brussels on 23 October (BBC News, 15 October 2011). George Osborne statement on the Eurozone. On 10 October, George Osborne gave a statement on the Eurozone to Parliament. In this he called for a Ring-fence. Recapitalise. Resolve strategy to dealing with the crisis. This would boost the strength of the EUs bailout fund, implement tougher stress tests for banks, and come to a decision about the fate of Greece (HM Treasury, Statement by the Chancellor, 10 October 2011). Dexia bailed out. On 10 October, the Belgian government announced that it would will buy the bank's division in Belgium for 4 billion euros. The bailout plan for Dexia came after German Chancellor Angela Merkel and French President Nicolas Sarkozy agreed Europe's crisis-hit banks needed to be recapitalised (BBC News, 10 October 2011). Italys credit rating downgraded by Moodys. On 4 October, credit rating agency Moodys cut Italys government bond ratings by three notches to A2, citing an increase in long-term funding risks for Eurozone countries who, like Italy, have high levels of public debt. This followed a recent downgrade by credit rating agency Standard & Poors. Both rating agencies have a negative outlook on the debt, meaning further downgrades are possible (Financial Times, 5 October 2011).

Our Approach
Ring-fence. Recapitalise. Resolve. On 10 October, in a statement to Parliament, Chancellor George Osborne set out a three part approach to the crisis in the Eurozone. We believe the package must be in place as soon as feasible and certainly no later than the G20 Leaders Summit in Cannes on 3-4 November 2011. o Ring-fence by increasing the size of the Eurozone bailout fund. We need to see the Eurozone members increase the firepower of their bailout fund. If youre trying to protect larger countries 440 billion is sadly not enough. How they do so whether by using more paid-in resources, more leverage, or more help from the ECB is up to them. Britain will not be a part of any permanent Eurozone bail-out fund. o Recapitalise the banks with tougher stress tests. European bank stress tests have not been nearly tough enough, as proved by the fact that Dexia did not fail them. European Banking Authority is working on a plan to test leading European banks against higher capital ratios and more credible benchmarks of their exposure to sovereign debt. European nations will need to set out the backstops they have in place to raise capital privately if they can or provide public capital if they cannot. Detailed work by the FSA confirms that the UK banks are much better capitalised and more liquid than many of their European counterparts.

o Resolution of the situation in Greece. Our advice to our European neighbours about what needs to happen is provided in private but our overall intent is very public the speculation about Greeces future needs to end. The Eurozone needs to come to a clear decision now and stick to it. And that decision needs to be based on a rigorous and realistic assessment of what is really happened in Greece and the debt dynamics of that countrys economy. A strong IMF. The UK believes that the international community needs a strong IMF as an anchor of global economic stability and prosperity. Over the past few years, we have seen how important that role can be in times of crisis, as the IMF has taken swift and decisive action to support the global economy. Continued monitoring. HM Treasury, the Bank of England and the Financial Services Authority are monitoring the financial system, including in the Euro area, on an ongoing basis. Many scenarios are considered as part of the normal policy development process, but it is worth remembering that UK banks have little direct exposure to Greece. Early action to stabilise and recapitalise the banks. The continuing uncertainty in the euro area is a reminder of the benefits of taking early action to stabilise and recapitalise the banks, as the UK has done. The UK banking system has developed a strong capital position, which has made it more resilient and will insure it against future risks. UK banks have made good progress in sourcing funding, despite the difficult market conditions. Tackling the budget deficit. The difficulties faced by Eurozone countries such as Greece and Portugal reinforce why it is right to pursue the course that we set last year to tackle the largest deficit in our peacetime history. Our deficit is larger than that of Portugal, but that our market rates are similar to those of Germany. The action we have taken to strengthen the countrys finances stands us in good stead during this period of instability in the Eurozone.

Political points to make

This could have been Britain had we not set out a credible plan to show that we could pay our way in the world. Last year, under Labour, the bond markets were warning the UK that our deficit was of a similar size to those of Greece, Portugal, Ireland and Spain. We were at risk of higher market interest rates threatening economic stability, higher mortgage rates for families and higher interest rates for small businesses. The UK was being compared to Greece by: o Governor Mervyn King: I think weve seen in the last two weeks, particularly, but in the case of Greece, over the last three months, that it doesnt make sense to run the risk of an adverse market reaction, but to get ahead of that and to demonstrate markets have been waiting for the UK Election; that is now over. They would expect a new government to take decisive action (Inflation Report Q&A, 12 May 2010). o Former Monetary Policy Committee member Professor Willem Buiter: Britains true fiscal circumstances are about as bad as Greeces reported situation (Financial Times, 2 March 2010). S&P recently affirmed the UKs credit rating, but said it could be downgraded if fiscal consolidation was slowed. On 3 October, the credit rating agency Standard and Poors (the agency which downgraded the US), affirmed the UKs credit rating. S&P warned that The ratings could come under downward pressure if, against our expectations... the coalition governments commitment to fiscal consolidation falters (S&P, Press Release, 3 October 2011). The Governments actions have put the UKs public finances on a sustainable footing

and safeguarded our AAA credit rating. A report published after the Spending Review on 26 October 2010 praised the Coalitions actions, it said: In our opinion, the decisions reached by the United Kingdom coalition government in its 2010 Spending Review reduce risks to the governments implementation of its June 2010 fiscal consolidation program. Moreover, the coalition parties have shown a high degree of cohesion in putting the U.K.s public finances onto what we view to be a more sustainable footing. We have accordingly revised the outlook on the United Kingdom to stable from negative (Standard and Poors Press Release, 26 October 2010). Labour signed up the UK up to a Euro bailout mechanism fund after the General Election (N.B. this is not being used for the current Greek bailout). Both the EFSM (European Financial Stabilisation Mechanism) and the EFSF (European Financial Stability Facility) were agreed by European finance ministers at ECOFIN the weekend of 8-9 May 2010. This was after the General Election, but before the Coalition Government was formed (European Commission; The Daily Telegraph, 10 May 2010). At the time, the Conservatives opposed Labour signing up to the bailout fund. Alistair Darling himself admitted that George Osborne had opposed the bailout fund: I discussed with the Chancellor what we should do about the financial stability mechanism. He had his reservations and stated very clearly that he was against deploying it (Hansard, 15 December 2010, Col. 954). In 2001, while Ed Balls was Gordon Browns main adviser, Labour gave away our veto on bailouts. Before 2001, we had a veto on EU bailouts. The pre-2001 Maastricht Treaty meant that Euro bailout decisions would have had to be decided by unanimity giving Britain a veto. The clause made clear that Qualified Majority Voting could only be used for genuine natural disasters - not financial bailouts - caused by exceptional occurrences beyond its control (Maastricht Treaty, Article 103a). After 2001, we lost our veto on EU bailouts. Under the 2001 Nice Treaty, which Labour signed, we were committed to Qualified Majority Voting for financial assistance to EU Member states for exceptional occurrences beyond its control (Nice Treaty, Article 100). In other words, we lost our veto on bailouts.

Hostile Questions
Q: Is Greece going to default? Greece has agreed a programme as part of its funding package and it must implement it. Q: Are we going to be part of any bailouts offered to Italy or Spain? We are not part of the Eurozone fund that Italy or Spain are now allowed to draw upon. Spain and Italy have not requested a bailout. Q: Will the crisis mean that there is a two-track European Union? As the Chancellor has made clear, we have to accept that greater Eurozone integration is necessary to make the single currency work and that is very much in our national interest. We should be prepared to let that happen. Q: How can you compare the UKs fiscal situation to that of Greece? It is appropriate to compare our deficit situation to that of Greece. Last year, we had a deficit of a similar size to Greece [2010: UK 10.4 per cent of GDP, Greece 10.5 per cent of GDP (European Commission Press Release, 26 April 2011).] And as the sovereign debt crisis escalated, the markets and leading commentators were comparing the UK to Greece including the Governor of the Bank of England and

former member of the Monetary Policy Committee Professor Willem Buiter. Q: Are we involved in the Greek bailout? The UK has not been involved in recent Eurozone discussions on Greece. We will not be part of any second bailout. This is the right result for British taxpayers. The UK participated in the May 2010 package for Greece only through its membership of the IMF. So the burden of providing finance to Greece is shared between the IMF and euro area member states, and we fully expect this to continue. Our position on that is well understood across the Euro area. Q: Arent you being complacent about the crisis and its potential impact on the UK? There is no room for complacency. The Treasury, the Bank of England and the Financial Services Authority are monitoring the financial system, including in the Euro area, on an ongoing basis. Many scenarios are considered as part of the normal policy development process, but it would not be appropriate to discuss the detail of those scenarios. It is also important to remember that UK banks have little direct exposure to Greece. Q: Doesnt the situation in Greece show that we are wrong to cut spending too far and too fast? No. The difficulties faced by Eurozone countries such as Greece and Portugal reinforce why it is right to pursue the course that we set last year to tackle the deficit. Our deficit is larger than that of Portugal, but that our market rates are similar to those of Germany. The action we have taken to strengthen the countrys finances stands us in good stead during this period of instability in the Eurozone.