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European Council

With permission, Mr. Speaker, I would like to make a statement about the European Council held in Brussels, which I attended with the Foreign Secretary on 13 and 14 March. I begin with the most important concern that the Council addressed: the need to ensure that, faced with global financial turbulence and what the Council identified as a deteriorating global economic outlook, high global oil and commodity prices and volatility in exchange rates, we continue to do all we can, with co-ordinated action at European and global level, to maintain stability and growth. All European member states agreed to measures for greater financial market transparency: first, prompt and full disclosure of exposures to structured products and off balance sheet activities; secondly, more rigour in credit ratings; thirdly, improvements in valuation standards, particularly for illiquid assets; and fourthly, a strengthening of risk management under the capital requirements directive. Given the globally transmitted nature of the risks, it is clear that many of those recommendations—the changes to credit rating agency operations and assessments; risk management and disclosure by global financial institutions; changes to capital adequacy rules; and arrangements for valuing financial instruments—which have also been proposed as measures for change by the American Administration, can best be implemented at a global level. And in welcoming that international dialogue as the first step in reform, I can tell the House that the Chancellor of the Exchequer is today writing to the G7, the International Monetary Fund and the Financial Stability Forum to call for agreements on co-ordinated international action on transparency and disclosure, better risk management and action on credit rating agencies to be agreed when the G7 and the IMF meet from 10 to 12 April. In line with the approach of other major central banks, the Bank of England has this morning announced a further £5 billion liquidity support to financial institutions. And a new group has been set up to improve liquidity in the mortgage market. At the European Council I made it clear that, while our economy is resilient and fundamentally strong, we will at all times remain vigilant and, especially at this time of global uncertainty, continue to take whatever action is necessary to maintain economic stability and growth. The Council also discussed a new approach to the rising number and economic power of sovereign wealth funds. I strongly welcome the conclusions. Sovereign wealth funds are now worth $2 trillion, but may soon potentially be worth $10 trillion. Our new approach—calling for a voluntary code of conduct based on best practice, openness, transparency and corporate governance—is one that will enable funds to show that they are commercial in their operations. The Council also discussed food and energy price inflation, and agreed further steps to monitor worldwide inflationary pressures. We agreed that the current global financial turbulence was not a reason to postpone fundamental economic reforms that are essential to building a more competitive European economy. We agreed that we now press ahead with the liberalisation of markets and with new investment in knowledge and innovation. That includes further liberalisation in the energy, post and telecoms markets, which could generate up to 360,000 new jobs. We discussed the need also for an economic reform strategy that looks beyond Lisbon—a comprehensive strategy to improve the business environment, strengthen relations with China and India, put our creative and knowledge industries at the forefront of the world economy, and make European universities leading global players, in particular through increasing their contacts with business. So the next stage of the Lisbon agenda will include a review of human capital and skills in Europe, and a renewed focus on competition policy in the single market. The second major issue discussed by the Council was climate change, where it is essential that we achieve our ambition of a comprehensive post 2012 agreement to reduce greenhouse gas emissions and of Europe leading the world in a low-carbon economy. In December, the European united front at the climate change negotiations in Bali played an important part in the historic breakthrough that agreed the need to make large cuts in emissions and achieve a new climate deal within two years. Only a common European approach—a Europe with Britain not at the margins but at the centre, leading the world—can ensure a global low-carbon economy founded on our proposal of a global carbon market. Building on this commitment, the Council agreed an ambitious schedule for adopting a package of measures to cut emissions by 20 per cent. by 2020 or by 30 per cent. as part of an international agreement. The Council also agreed with the UK on the need for an effective EU emissions trading scheme to provide the incentives to drive carbon reductions in the most cost-effective way and for a cap on emissions set centrally, with a clear emissions reductions trajectory to give investors the predictability that they now need. The Council also considered a report from the EU high representative on the security implications of climate change and, at our request, agreed to submit recommendations on follow-up action—including intensifying co-operation with countries outside Europe—by the end of the year. Meeting the EU's climate change targets requires not just action to reduce carbon emissions from energy suppliers and industry, but incentives to change individual behaviour. The Council will now invite the Commission, in bringing forward its legislative proposals on VAT rates, due in the summer, and working with member states, to examine areas where economic instruments, including VAT rates, can play a role in increasing the use of energy-efficient goods and energy-saving materials, from, as the UK has proposed, insulation and household materials to energy-efficient electrical goods, where VAT is cut. The Council also agreed on the importance of achieving a fully functioning and joined-up internal energy market, as an essential condition for the secure, sustainable and competitive supply of energy across Europe. We also committed to an energy agreement by June this year. It is clear that energy security is strengthened by a policy that takes a collective approach to third-country producers, notably Russia. Europe can also play a part in ensuring stability beyond its borders. The Council agreed to build on existing co-operation to establish a ““Union for the Mediterranean””, to promote security and stability in the wider region and to provide a framework for co-operation between the EU27 and other Mediterranean coastal states on political and security issues, as well as economic, social and cultural affairs. That new union will be launched during the French presidency in July this year. We also agreed that international development issues and the achievement of the millennium development goals, as well as Europe's continuing leadership as the biggest contributor of aid in the world, will be the subject of a major discussion at the European Council in June. The outcome of the Council and the preparations that are being made for June affirm the conclusions of the debate that we have had in the House over the past nine weeks: they demonstrate that, with the completion of the Lisbon treaty, we now have an opportunity to move beyond institutional issues to create a more outward-looking, flexible and global Europe, and to address the challenges that matter most to the citizens of Europe. With three quarters of a million businesses, 3.5 million jobs and 60 per cent. of British trade dependent on our relationship with Europe, we should do nothing to put the stability of that relationship at risk. It is only by working constructively and remaining fully engaged with our European partners that we properly address the challenges ahead. As we prepare for the European Council in June and the French presidency later this year, our aim is that European countries working together can lead the way on climate change, on security, on international development and on the response to global financial turbulence. I will be discussing with President Sarkozy when he visits Britain next week how we can take all these challenges forward during the French presidency. I commend this statement to the House.