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European Council: 15-16 October 2008

My Lords, with the leave of the House, I shall repeat a Statement made in the other place by my right honourable friend the Prime Minister. The Statement is as follows: ““With permission, Mr Speaker, I should like to make a Statement about the European Council held in Brussels, which I attended with my right honourable friends the Chancellor and the Foreign Secretary on 15 and 16 October, the main business of which was to consider European actions to stabilise financial markets and how we can work together to reform our international financial systems. The Council also welcomed the co-ordinated interest rate cut by central banks around the world. ““At the heart of our considerations was our shared understanding that the massive reduction in global financial activity and the fracturing of the global financial system has been the result of irresponsible and often undisclosed lending that started in American sub-prime markets. And, while national action is necessary, the root problem can only be dealt with by changes in our financial systems—to recapitalise banks and to reform supervision around the principle of rewarding hard work, enterprise and responsible risk-taking, but not irresponsibility and excess. ““Market estimates suggest that in recent years some $2 trillion of US originated loans—many of them toxic—were bought by EU banks. So, to strengthen our banks, the Council welcomed the comprehensive action on liquidity, capital and funding guarantees of our Government and of the euro-zone countries under the leadership of President Sarkozy, President Barroso and, ECB President, Jean-Claude Trichet. ““The Council also welcomed the joint commitment from the leaders of the G8 countries to hold a leaders’ meeting and agreed the principles and priority areas for global action. ““Stage one to recovery has been to stabilise financial markets, thereby securing a resumption of lending. In Britain almost £50 billion has been injected as capital into our banks. The Government alone have taken shares worth £37 billion in two of our largest banks. And across the world more than £300 billion has now been approved from public funds to recapitalise the banking system. ““At the heart of the British decision was that medium-term funding was conditional on bank recapitalisation. We also welcome the agreement of the Council that EU countries will provide medium-term state guarantees for new interbank loans. ““I particularly welcome the decision of the European Investment Bank, following my initial proposals at the G4 summit in Paris earlier this month, to mobilise and frontload €30 billion to support new lending to Europe’s, and then Britain’s, small businesses. ““However, confidence today depends also on there being confidence about the future. So we agreed on the need to achieve a reform of the global financial system around five key principles—transparency, integrity, responsibility, sound banking practice and global governance with co-ordination across borders. ““We will submit a detailed set of proposals to the international leaders meeting. I can tell the House today that I will be putting these proposals to all countries, including emerging countries. I have already put them to President Bush. They include insisting on openness and disclosure, with off balance sheet vehicles brought back on to balance sheets, greater transparency around the use of credit derivatives, and a rapid adoption of internationally agreed accounting standards so that value-impaired assets can no longer be hidden; removing once and for all the conflicts of interest which have distorted behaviour and undermined trust, so that credit rating agencies no longer act as advisers to the companies they rate and executive remuneration rewards not excessive or irresponsible risk taking but hard work, enterprise, effort and responsible risk taking; ensuring board members have the competence and expertise to manage the risks for which they are ultimately responsible, and cannot walk away from their obligations; regulation which looks at both solvency and liquidity and ensures that the financial system supports wider economic stability; and a new international architecture for the global financial sector for the years ahead. ““So we want to move to early decisions with our international partners about reform of the International Monetary Fund and Financial Stability Forum, including the creation of an early warning system for the global economy; globally accepted standards of supervision applied equally and consistently in all countries; effective cross-border supervision of global firms, starting with establishing 30 international colleges of supervisors by the end of this year; cross-border co-operation and concerted action in a crisis; and we also want to see greater global macroeconomic co-ordination and, to prevent the return of protectionism, we want to see the reopening of the world trade talks. And I welcome the proposals from Australian Prime Minister Rudd. ““The events of the past few days have demonstrated that we need urgently to deploy in eastern Europe and emerging markets the IMF’s facilities and resources to the fullest extent—and also the resources of the multilateral development banks—to prevent capital flight, to engage in and support countercyclical policies and to finance domestic growth where exports have declined and capital has flown outwards. We need urgently to consider creating a new IMF facility for emerging economies in the current crisis. Rescuing eastern European countries is particularly urgent and I have asked the European Bank for Reconstruction and Development, the European Investment Bank and the World Bank to consider what they can do immediately. ““The Council also discussed in detail how each of our economies was being affected by the global economic downturn that started in America. Had we not acted to stabilise the banking system, the effect on households and businesses would have been even more severe; but, notwithstanding the action that has been taken, the world is facing a severe global economic downturn, with negative growth already seen in France, Germany and Italy this year and in the US last year. The UK cannot insulate itself from this global downturn, but with interest rates low and falling and inflation expected to come down over the next year, our underlying economic indicators are stronger than at any other previous downturn. Debt has been considerably lower than a decade ago, and lower than all G7 countries except Canada, enabling the Government to increase borrowing at the right time to support the economy. The Government will do whatever it takes for mortgage-holders, for small firms and for employees to help families and business through what will undoubtedly be a difficult period ahead. We will bring the same focus and determination to the task of protecting jobs, homes and small business as we did to avert the threatened meltdown of the financial system. ““That will be the central mission of the Government over the coming weeks and months, and I welcome the support, in the national interest, of all prepared to give that support. ““The Council also reached important conclusions on energy and climate change; on Russia and Georgia; and on the European Pact on Immigration and Asylum. Next year in Copenhagen, the world has an historic opportunity to secure prosperity for generations ahead with international action on climate change. While there are those who will seek to use current global financial problems as an excuse to pull back from change, to pull up the drawbridge and renege on our commitments, in fact it is now more essential than ever before to push forwards with our ambitious agenda on energy security and climate change. As the Stern report showed, weak or delayed action will cost us all more in the years to come, both financially and economically. The Council reaffirmed its commitment to reach agreement by December on its energy and climate change package for 2020. We made clear the importance in doing so of achieving a fair balance, with all member states accepting new commitments; that there must be flexibility for member states to meet targets in the most cost-effective way; and that Europe's package must send the strongest possible signal to encourage the rest of the world to aim high at the Copenhagen summit next year. ““As last week's Statement from my right honourable friend the Secretary of State for Energy and Climate Change made clear, the Government are committed to the most ambitious targets, cutting greenhouse gas emissions by 80 per cent by the middle of this century, not just for the future of our environment, but as a crucial part of our strategy for energy security. But we cannot fulfil our aspirations for climate change without nuclear power and European and international co-operation. That is why we will fully engage with the European Union on the environment and not pursue a policy based on unilateralism and detachment. Faced with historically high and volatile oil prices, it is more essential than ever before that we act to end our dependency on oil. ““The Council looked for greater diversification of energy sources, the completion of fully functioning EU energy markets and improved critical energy infrastructure—for example, in the southern corridor. Our London energy meeting in December will seek to drive forward progress in the critical dialogue between oil-producing and oil-consuming nations. Today, I would urge OPEC at its meeting on Friday to work through dialogue with consumer countries to stabilise the energy market as a whole. ““The Council has expressed its grave concern over Russia's actions in Georgia and called on all sides to implement in full the six-point plan agreed with European leaders. The Council therefore welcomed the withdrawal of Russian troops as an essential additional step in the implementation of the agreements of 12 August and 8 September, and the launching in Geneva of the international discussions provided for by those agreements. The Council and Commission will continue to make a full in-depth evaluation of relations with Russia ahead of the EU/Russia summit in Nice next month. The Council also resolved to continue to support its eastern neighbours in their efforts to achieve democracy and economic modernisation, and to consider a future EU eastern partnership. ““Finally, the Council considered the European pact on immigration and asylum, underlining the importance of ensuring coherence between Union policies, including free movement. Britain and Europe benefit economically from free movement, but free movement cannot be an unfettered right. It must bring with it clear responsibilities, with failure to meet them carrying clear consequences, including, where appropriate, the loss of that right entirely. I discussed this point in further detail with a number of European leaders in the margins of the Council, building considerable support across member states and agreement to look further at the responsibilities associated with free movement where crimes are committed by EU residents in the EU, but outside their country of origin, and to return to this issue in December. ““This summit showed that in facing global challenges, whether the credit crunch, climate change or energy security, we succeed best not in isolation but in co-operation, not with unilateralism and separation from our European neighbours, but in active partnership with them. That is why our policy will rightly remain one of being fully engaged at the centre of Europe, and I commend the Statement to the House””. My Lords, that concludes the Statement.