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Spring European Council

With permission, Mr. Speaker, I shall make a statement on the European Council held in Brussels last Thursday and Friday, which I attended with the Chancellor and the Foreign Secretary, and which once again emphasised the importance of European and international co-operation to address this financial crisis. In October and November, all European and then G20 countries agreed to recapitalise the banks. In November, both the European Union and the G20 agreed on co-ordinated fiscal action to support employment and growth. Just as in the previous summit in December, Europe led the way towards a global climate change deal, which we hope to secure in Copenhagen later this year. Europe has now made proposals in advance of the G20 meeting in London to reshape the global financial and trading system and to do what is necessary to build economic recovery across the world. First, we agreed that the global challenges we face today cannot be met if nations turn inwards to a protectionism that—history tells us—in the end protects no one. Our agreement to""avoid all forms of protectionist measures"" will require careful monitoring by the World Trade Organisation. The Council agreed to encourage international trade by facilitating more trade credits, and the Council called for a""swift conclusion of bilateral trade negotiations and of the…Doha Development Agenda."" Secondly, we agreed measures to put to the G20 for global agreements to reshape the regulation of banks and financial services. We agreed that all systemically important institutions should be subject to appropriate regulation and oversight, and that this would extend to include hedge funds and the shadow banking sector. We pledged to protect the world's financial system from non-transparent, non-co-operative and loosely regulated jurisdictions, including offshore centres and tax havens. We welcome the progress that has already been made by Switzerland, Austria, Andorra, Lichtenstein and other countries, and look forward to seeing them implement the international standard—[Interruption.]...We call on all those countries yet to endorse the OECD standard to do so urgently. The Council also agreed to improve supervisory co-operation by pushing forward with colleges of supervisors for all major cross-border financial institutions. We also agreed to adopt international principles on remuneration in the financial sector, based on an approach that rewards long-term success rather than excessive risk-taking. We called on the Council and the European Parliament""to rapidly reach agreement on the legislative acts relating to credit rating agencies, the solvency of insurance companies, the capital requirements for banks, and cross-border payments and electronic money"." At its next meeting in June, the Council will take its first decisions on regulation and supervision following the de Larosière report. Our policy is that regulatory rules should be set at an international level but that direct supervision is a matter for our national authorities. The Council was clear that by acting together, the European Union can""put its financial sector on a sound footing, get credit flowing to the real economy and protect its citizens from the worst impacts of the crisis"," as well as helping to build a stronger economy for the future. The Council welcomed the Commission's proposal to double, to €50 billion, balance of payments assistance so that those within the European Union have the support they need to deliver the fiscal stimulus required to ensure their recovery. But with global capital flows in 2008 down by more than 80 per cent. compared with 2007, and with the financing gap for emerging economies this year up to $800 billion, this is not just an issue for central European, eastern European and emerging economies. Because of the continuing risk of contagion, it is an issue for every country in the world. It is vital that we increase the resources available to the International Monetary Fund to ensure that it can intervene to stabilise economies, stop the crisis spreading, and return the global economy to growth. The Council called for a very substantial increase in resources available to the IMF, and agreed that, for their contribution to this increase, EU member states should as a first step provide on a voluntary basis a fast temporary support of IMF lending capacity in the form of a loan of over $100 billion. The Council called for continued""international coordination of fiscal stimulus measures."" It agreed that:""Good progress has been made in implementing the…Economic Recovery Plan"," and that while we must ensure fiscal sustainability in the medium term,""the size of the fiscal effort (around 3.3 per cent. of EU GDP or over €400 billion) will generate new investments, boost demand, create jobs and help the EU move to a low-carbon economy."" We agreed a further €5 billion to be invested in stimulus projects in energy security, renewable energy and broadband. The agreement provides for at least €220 million of additional investment in UK carbon capture and storage and offshore wind projects. We have seen an unprecedented fiscal injection in almost every major economy: in France, a package worth €26 billion with further recent measures worth €2.6 billion; in Spain, an infrastructure package worth €11 billion alongside other measures, with the IMF estimating a total stimulus of 2.3 per cent. of GDP; and in Germany, not one but two fiscal stimulus packages totalling €82 billion—1.5 per cent. of its GDP this year and 2 per cent. of GDP in 2010. As the Council concluded, Europe's determination is""to do what is necessary to restore jobs and growth."" The Council also reached important conclusions on energy security and climate change, on the eastern partnership and the relationship with the United States. The Council remains committed to working for a worldwide and comprehensive climate change agreement in Copenhagen. Following the December council, Europe became the first continent in history to make legally binding the detailed policies required to set itself on a path to a low-carbon economy. There is a commitment to a 30 per cent. reduction in emissions, provided that other countries make comparable commitments according to their capabilities. But our success in Copenhagen will depend on unlocking negotiations with developing countries. The Council therefore agreed that within the framework of a future comprehensive climate agreement, the European Union will take on its fair share of financing for green technologies, reducing deforestation and protecting the poorest from the impacts of climate change. The global economic downturn is no time to walk away from our commitments to the developing world. The Council agreed that Europe should continue to play a leading role in supporting developing countries in order to avoid jeopardising the progress achieved in recent years and undermining their economic and political stability. The Council agreed that commitments to increase development assistance and to deliver on the millennium development goals must be honoured. The Council also emphasised the importance of promoting stability, good governance and economic development in the eastern neighbourhood. Finally, in looking ahead to the informal EU-US summit to be held in Prague next month, the Council welcomed the inauguration of President Obama and reaffirmed the strategic importance of transatlantic relations. At this moment of international economic crisis, we are showing that Europe and the world can work together to achieve co-ordinated interest rate cuts, substantial fiscal stimulus, banking reform, new rules for tax havens and new rules for remuneration. I commend this statement to the House.