European Communities (Definition of Treaties) (European Investment Fund) Order 1993

HL Deb 06 December 1993 vol 550 cc782-7

5.15 p.m.

The Earl of Caithness: rose to move, That the draft order laid before the House on 18th November be approved [1st Report from the Joint Committee].

The noble Earl said: My Lords, I beg to move that this House approve the European Communities (Definition of Treaties) (European Investment Fund) Order 1993.

Noble Lords will recall that a year ago in Edinburgh at the conclusion of the UK's presidency of the European Community, the European Council agreed a package of measures to promote economic recovery in the EC. One of those measures was a request that the ECOFIN council and the European Investment Bank give urgent and sympathetic consideration to the establishment of a European investment fund. That work has now been substantially completed, with agreement being reached on the precise role of the fund and on the draft statute which sets out its rules of operation. So the Brussels European Council on 29th October was able to commit itself to bringing the fund into existence by the new year.

The new fund had its origins within the European Investment Bank. That is one of the Community's least-known and perhaps least appreciated institutions.

Its primary purpose is to provide medium- and long-term loans to capital investment projects which further the economic development of the Community. It now operates on a very considerable scale and the UK is a major beneficiary.

In 1992, total lending amounted to nearly £13 billion, of which £1.8 billion was lent to projects in this country, making the UK the, third largest recipient among EC member states. Although the fund will be based at the bank's headquarters in Luxembourg and will be staffed by bank personnel on secondment, legally and financially it will be entirely independent of the bank. There are two reasons for that. The first is operational. The fund will complement, not duplicate, the bank's role. It will not make loans, but instead provide guarantees. In due course it may also take equity stakes in enterprises. Under its draft statute, the fund will operate in support of two classes of undertaking, small and medium-sized enterprises and planned European networks, projects to improve the links between the member states' national transport, telecommunications and energy networks. Initially the fund will provide guarantees for loans made by other financial institutions. Such guarantees are a form of insurance, for which the company which benefits will pay but which will make it easy to borrow money on reasonable terms. After two years its shareholders may allow the fund to take equity holdings. Here it would concentrate particularly on small and medium-sized enterprises. The fund would not take a holding in its own name, but rather acquire stakes in financial institutions which specialise in holding such equity.

The second reason for the fund's independent status is legal and institutional. The fund would have an initial subscribed capital of 2 billion ecu, that is £1.5 billion, of which the European Investment Bank would hold 40 per cent. It is envisaged that the remaining 60 per cent. would be divided equally between the Community itself, represented by the Commission, and those of the Community's private sector banking institutions which wish to become members. That participation by the private sector is important since guarantees will not be provided directly to small and medium-sized enterprises but rather through the agency of local banks with expertise in their relevant area. The fund will be run on a commercial basis and may pay dividends on its capital.

The procedure for setting up the fund is somewhat complex. Legally what is required is for the board of governors of the European Investment Bank, which includes my right honourable friend the Chancellor of the Exchequer as United Kingdom representative, to set up the new body and then invite the Community and private sector banks to join. However, in order that that be done, the statute of the bank must be amended to provide the Government with the necessary powers, for the statute is a protocol of the Treaty of Rome. An amendment to the statute is thus an amendment to the treaty. In order to make such an amendment, member states must first agree the change at an intergovernmental conference; and then each must ratify the change in accordance with its own procedures. The required IGC met in Brussels on 28th March, and it is in order to enable ratification by the UK to take place that I have moved this order today.

This order provides far the necessary small amendment to the Treaty of Rome to be regarded as one of the Community Treaties aS defined in Section 1(2) of the European Communities Act 1972. The amendment would add a new article, Article 30, to the Protocol on the statute of the European Investment Bank. If the amendment is ratified by all member states, that article would enable the board of governors of the bank to create the European Investment Fund by unanimous decision. Once specified in order, a treaty is to be conclusively regarded as one of the Community Treaties. The order in council has to be approved in draft by a resolution of both Houses; hence, there is this debate.

To sum up, the concept of the European Investment Fund was given a big push by the initiative launched last year at Edinburgh under the UK presidency. The fund itself would prove a useful addition to the Community response to the key problems of unemployment and loss of competitiveness. Because it is targeted on small and medium sized enterprises, the important engines of economic growth and employment generation and on trans-European networks, it will encourage private sector initiative, work with the grain of the enterprise culture and so help improve competitiveness and employment. I commend the order to the House.

Moved, That the draft order laid before the House on 18th November be approved [1st Report from the Joint Committee]. —(The Earl of Caithness.)

Lord Peston

My Lords, I thank the noble Earl for his remarks on the order. I can speak quite briefly, for two reasons. One is that the order was discussed at some length in the other place. Secondly, this is the kind of European socialist initiative which we on this side strongly support and of which we should like to see more. I am delighted to see that the noble Earl has come round to our way of thinking on matters of this kind. This is precisely the way, but on a larger scale, in which we can deal with problems of unemployment in Europe. Let me add that I join with the noble Earl in applauding the work of the European Investment Bank which, as he rightly said, is unappreciated but quietly does very useful work.

I want to raise a couple of technical questions which I did not see answered in a way that I could understand in the other place when his honourable friend the Economic Secretary replied to the debate there. I am still a trifle lost as to the nature of the Government's commitment. The fund essentially is a guarantee, and we know that some enterprises go wrong. If the fund were to make some misjudgments—it would be through no fault of its own since the market works so that some things succeed and others fail—who would bear the cost? The Economic Secretary seemed to say that there were absolutely no public finance consequences of the fund at all. When the noble Earl has a chance to reply, I wonder whether he would explain precisely why that would be so.

Secondly, is there any deep significance in the ability of the fund to take an equity interest in the small and medium enterprises? I take it that the fund is technically a public sector body within the Community—or perhaps the noble Earl could tell me whether that is true—in which case, taking an equity interest sounds to me like nationalisation, certainly on a small scale but that kind of activity.

Those are technical points. I am not approaching them politically but wearing my economist's hat. I am rather interested to know the answers to those questions. Broadly, the point of my intervention is to welcome the existence of the fund and the support for it. I hope that it succeeds and that its scale of operation will increase.

Lord Bruce of Donington

My Lords, I too should like to express an interest in the order that is to be discussed today. I cannot entirely share the enthusiasm of my colleague, the noble Lord, Lord Peston, for its socialist content. I fail to detect anything of even a remotely pink hue. It has never been my philosophy that matters of this kind should be placed in the hands of professional bankers, and I do not see very much input from governments here.

In the Act itself, the preamble starts off by being: Determined to provide for the necessary financial instruments for the strengthening of the internal market and economic and social cohesion". Those words have had a familiar and weary ring over the years. So far they have resulted, at any rate in Europe, in unemployment running from 17 million and rapidly approaching 20 million. So the determination expressed is very welcome.

Again in the preamble there is a reference to the European Council in Edinburgh giving consideration to the establishment of the fund: to promote economic recovery in Europe". I am a little disappointed by the use of those terms. It seems to me that those concerned do not yet seem to have made up their mind as to what European economic recovery consists in. For some it is a recovery of the very rich to the detriment of the poor. Therefore economic recovery is not always the correct description when it is applied to the country as a whole or even to the Community as a whole.

I turn to Article A, which after all is the protocol itself and which advocates the addition of Article 30. Paragraph 2 states: The Board of Governors shall establish the Statute of the European Investment Fund by unanimous decision". Over the years I have grown very distrustful of bankers establishing anything for the broad and general economic and social benefit of the Community. Paragraph 2 continues: The Statute shall define, in particular, its objectives, structure, capital, membership, financial resources, means of intervention and auditing arrangements". And so it continues. Given the history of the banking community generally over the past 20 years or so, on balance I would sooner that these matters be determined by the people's representatives politically rather than by the Bank.

Paragraph 4 states that the "European Economic Community"—that is now an obsolete term and I am not quite sure whether it should be the European Union or the European Community: may become a member of the Fund"— It does not say "shall"— and contribute to its subscribed capital". It continues: Financial institutions with an interest in the objectives of the Fund may be invited to become members". It does not anywhere say that governments in themselves can or intend to become members. I take it that that was the point taken by my noble friend. He wondered whether there was some remote possibility of nationalisation afoot. I see that it is quite impossible on the basis of paragraph 4.

In general, I begin to wonder how this measure will be applied. If the normal banking considerations that have littered the Community and the world spectrum over the past 25 years are any guide, then banking judgments as to the application of these guarantees would appear on the face of it to be unlikely to add much to the benefit of mankind in the Community. We can only hope—and, indeed, it is with hope in mind that I receive this order with some interest.

I note, incidentally, that the governments concerned—or the state presidents—have delegated the signing of this measure not, as is customary, to Ministers to sign on their behalf but universally to members of COREPER. That is the COREPER of old. I expect that COREPER cooked it up and I expect that COREPER will ultimately be responsible for it. I hope that it will not be too much to the detriment of what remains of the European Community.

5.30 p.m.

The Earl of Caithness

My Lords, I was delighted to see the noble Lord, Lord Bruce of Donington, in his place this afternoon and to witness the fact that life has returned to normal with the healthy disagreement between him and his Front Bench on all matters European. It was pleasant to hear his straight contradiction to the noble Lord, Lord Peston, that this is a nice, socialist-type agreement. The noble Lord, Lord Bruce, saw nothing pink in it whatever.

I was puzzled that the noble Lord, Lord Peston, thought it was some kind of socialist-type agreement. When the matter was discussed in another place it was voted on and the true socialists in the Labour Party came out in force to vote against it. People like Mr. Skinner and Mr. Cryer, not known for their Right-wing views, did not seem to believe that it was much of a socialist piece of initiative. It is true that the Government own part of the EIB capital and that, through their membership of the EIB and the Community, they will have a stake in EIF. But that is so for many international financial institutions. I recommend that the noble Lord, Lord Peston, considers the analogy with the IMF.

Lord Peston

My Lords, perhaps the noble Earl will allow me to intervene. I saw the relevant copy of the Commons Hansard. The matter was voted on but I do not see the name of the honourable gentleman Mr. Skinner as voting against it. Around three people voted against it and they did not include Mr. Skinner, though I do not accept that he is the true embodiment of pure socialism—but that is another matter.

The Earl of Caithness

My Lords, I understand that Mr. Skinner was a Teller who voted no.

Lord Peston

My Lords, I beg your Lordships' pardon. A Teller counts as a vote.

The Earl of Caithness

My Lords, I am not 100 per cent. conversant with procedures in another place. In this House Tellers certainly count and I assumed that they counted in another place. I see the noble Lord, Lord Bruce, nodding and therefore assume that I am correct.

I was drawing the analogy with the Government's stake in IMF. The EIB and the EIF certainly cannot be regarded as interventionist. They are not engaged in telling industry how to run its affairs, but rather with enabling companies to raise finance which may not otherwise be available or available only at a higher price. Considering the potential benefit, I suggest to the noble Lord, Lord Peston, that that can only be good for business.

I do not believe that there is any deep significance in the question of taking an equity interest. It will be taken by intermediaries—the financial institutions—in relation to the small and medium sized enterprises. As the noble Lord, Lord Bruce, reminded the House, the EIF will never take more than 50 per cent. equity and therefore will not take a controlling interest in the enterprises.

I understand the dislike of bankers felt by the noble Lord, Lord Bruce. One or two other people are perhaps not as keen on bankers as they were five years ago. But I am sure that the order will be all to the good and I commend it to the House.

On Question, Motion agreed to.