House of Commons Statement on the European Council

17 March 2008 Check Against Delivery With permission, Mr Speaker, I would like to make a statement about the European Council held in Brussels that I attended with my Rt Hon Friend the Foreign Secretary on the 13th and 14th of March. I begin with the most immediate concern 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 coordinated action at a European and a global level to maintain stability and growth.

Mr Speaker, 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; second, more rigour in credit ratings; third, improvements in valuation standards, particularly for illiquid assets; and fourth, a strengthening of risk management under the Capital Requirements Directive.

Given the globally transmitted nature of the risks, it is clear that many of these 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 now also been proposed by the American administration — can best be implemented at a global level.

And in welcoming this international dialogue as the first step in reform, I can tell the House that my Rt Hon Friend the Chancellor of the Exchequer is today writing to members of the International Monetary Fund, the G7 and the Financial Stability Forum to call for agreements on coordinated international action on transparency and disclosure, better risk management and action on credit rating agencies when the G7 and the IMF meet from the 10th to the 12th of April.

In line with the approach of other major central banks, the Bank of England has this morning announced a further £5 billion pounds 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 clear that, while our economy is resilient and the fundamentals strong, we will at all times remain vigilant and - particularly at this time of global uncertainty - will continue to take whatever action is necessary to maintain economic stability.

Mr Speaker, the Council also discussed, and I strongly welcomed, a new approach to the rising number and economic power of Sovereign Wealth Funds — now worth trillion dollars but potentially soon to be worth trillion dollars. 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 they are commercial in their operations.

The Council also discussed food and energy price inflation and agreed further steps to monitor world wide inflationary pressures. We agreed that the current global financial turbulence was not a reason to postpone the fundamental economic reforms that are essential to building a more competitive European economy — and that we now need to press ahead with the liberalisation of markets and with new investment in knowledge and innovation. This includes further liberalisation in the energy, post and telecoms markets - where market opening could generate between €75 and €95 billion euros of potential extra economic benefits and create up to 360,000 new jobs.

And we discussed the need for an economic reform strategy that looks beyond Lisbon - a comprehensive strategy to improve the business environment, strengthen the EU’s economic 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 EU Single Market.

Mr Speaker, 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 create a global low carbon economy.

In December, Europe’s 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 the next 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 a global carbon market.

And, building on this commitment to move towards a low carbon economy, the Council agreed an ambitious schedule for adopting a package of measures to cut EU 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 an EU ETS cap on emissions set centrally with a clear emissions reductions trajectory to give investors the predictability they need.

The Council also considered a report from Javier Solana, the EU High Representative on Foreign Affairs, on the security implications of climate change, and at the UK’s request agreed to submit recommendations on follow-up action – including intensifying cooperation with countries outside of Europe – by the end of this year.

Mr Speaker, meeting the EU’s climate change targets requires not just action to reduce carbon emissions from energy suppliers and from industry but incentives to change individual behaviour as well. And 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.

The Council also agreed on the importance of achieving an effective, fully-functioning and joined up internal energy market as an essential condition for the secure, sustainable and competitive supply of energy in Europe - committing to an energy agreement by June this year.

It is clear that the EU’s energy security is strengthened by a policy that takes a collective approach to third country producers, notably Russia.

Europe can also play an important role in ensuring stability beyond its borders — and the Council agreed to build on existing cooperation to establish a ‘Union for the Mediterranean’ to promote security and stability in the wider region and to provide a framework for cooperation between the EU 27 and other Mediterranean coastal states on political and security issues as well as economic, social and cultural affairs – and this 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 - and Europe’s continuing leadership as the biggest contributor of aid - will be the subject of a major discussion at the European Council in June.

Mr Speaker, the outcome of the Council and the preparations that are being made for the June Council affirm the conclusions of the debate we have had in this House over the last nine weeks - demonstrating 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, global Europe and to address the challenges that matter most to the citizens of Europe.

With 700,000 businesses, 3.5 million jobs and 60 per cent of our trade dependent on our relationship with Europe, we should do nothing to put the stability of that relationship at risk — and it is only by working constructively with and remaining fully engaged with our European partners that we can address the challenges ahead.

And as we prepare for the European Council in June and the French Presidency later in the year, our aim is that European countries working together 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 these issues forward. And I commend this statement to the House.