European Affairs

The hon. Gentleman potentially opens up a lengthy debate. All I can say is that these issues are properly negotiated and debated within the Council. There is a difference of opinion within the European Scrutiny Committee on whether it is necessary to have a European structure as opposed to an international structure, and whether Britain's best interests might be served in engaging with an international structure. Hon. Members will have differing approaches on that. Given that the EU consists of 27 countries, including several of the world's major economies, and is a major economic force in terms of the eurozone, just as the City is a major financial source, I cannot believe that it is not better to combine the strengths of that bloc to represent European interests on the international forums more effectively. We have been engaging with the G20 to ensure that a world economic recovery takes place, and nobody has argued that that should preclude work undertaken at the European level with broadly the same economic objectives. I do not share the position that the hon. Gentleman outlines, but I recognise that it exists. I believe that there are global international financial movements that have to be looked at on a global scale, regional financial movements—and corporations and bodies that operate regionally—for which it is appropriate to have regional supervision, and national corporations, for which it is appropriate to have a national level of supervision. Specific areas of concern were highlighted during the Committee's investigations, the first of which related to whether the European systemic risk council should deal with the whole of Europe and whether the way in which it is being proposed, under the presidency of the European Central Bank, was likely to mean that it focused only on the eurozone. It is clearly necessary for this particular body to deal with the whole of Europe, including countries, such as Britain, that are outside the eurozone. Another issue was whether its chair could be the president of the ECB, because in its deliberations and considerations it may have to look critically at the ECB. A clear potential conflict of interest is involved, and that issue must be addressed. The risk council should include the national regulators, and that should include the Financial Services Authority. I hope that Ministers will take up those issues and prosecute them effectively at the Council. There will obviously be a tension between the national supervisory framework and the potential European supervision. I believe, and I know this to be the feeling of British financial institutions, that any outcome must be sensitive to the specific needs of the structure of the British financial services industry. In the past, building societies have been concerned that Britain's supervisory financial regulators have not had sufficient understanding of, or sympathy for, the mutual movement. That situation could be much worse if the balance of regulatory power moved away from this country to Europe. That is a matter of considerable concern, and it is fair to say that we would expect our Ministers to prosecute that particular argument very effectively. There are issues to address in relation to credit rating agencies. I know that our ministerial team is rather at odds with the Commission's recommendations on those. There is a serious issue associated with the credibility of credit rating agencies. The power that they have in their classifications has enormous significance for the survival of financial institutions, yet historically—this includes their role in the credit crunch—they have not been beyond criticism. Who regulates or monitors them to see just how accurate and relevant their ratings are? There is far more credibility than one might think, but I hope that the Minister will ensure that whatever model comes out of these deliberations will provide effective national accountability for organisations in this country, with particular reference to the sort of model that credit rating agencies use to assess British financial institutions. There is a need for much greater transparency and more monitoring of the outcomes of the ratings that those agencies give. Our track record in Europe in getting effective European action on the recovery is good, but the issues that I have mentioned must be vigorously addressed in the debates that will be held. The broad thrust of the Commission's proposals is good, and the EU could play a vital role in leading the world economic recovery by re-establishing faith in the international financial system, but we must ensure that the proposals that we adopt are sensitive to the needs of the British financial services industry. The City is a major world financial centre, and the potential consequences of getting it wrong are serious indeed. We need a regulatory and supervisory structure that recognises not only the strength of the financial services sector but the diversity of provision within it.