European and External Relations Committee

Meeting date: Tuesday, October 4, 2011

Official Report 410KB pdf

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“Brussels Bulletin”

Agenda item 3 is the “Brussels Bulletin”, which I know members will have sat up late last night reading from to cover to cover. Do members have any comments on it?

Many of the issues were covered in the committee papers on financial issues. There is an element of duplication, but it continues the high profile of the financial aspects. It was helpful to be updated on the energy issues that are being considered in Brussels. The bulletin is helpful, because it gives a snapshot of what is happening, and if we want to dig a little deeper, we can do that.

I would like a wee bit of an update from behind the scenes, rather than from the television, about what is happening with the euro zone. Has the situation moved on since the bulletin was written?

Yes, it has moved on a little. As you know, the big issue is Greece and the next payment from the fund to Greece. That should have been decided at the next meeting of finance ministers, on 13 October, but that meeting has been cancelled. Greece had stated that it needed its next tranche of money in mid to early October, although it now says that it does not need the money at that point and that it can survive into November, which is when the discussion will now take place.

Two other issues are emerging in Brussels. The first is that there is a recognition that member states and the Commission cannot move fast enough as they are just not quick at taking decisions. Because of the ratification process for decisions, even when a decision is taken, it does not happen straight away. The assumption in the media is that a decision has been taken and will be implemented, but it must be ratified and then implemented. In that grey period, much uncertainty is created. At that point, the markets have a significant ability to influence things.

The second and perhaps more interesting issue is that, as members might have seen today, one of the big banks in Europe has had significant troubles. The bank Dexia, in which Belgium and France are the major shareholders, has experienced severe difficulties. One reason why that is significant is that it is not that long since the EU bank stability test was applied to that bank, and it passed with flying colours. The concern is that, if a bank can pass the stability test with flying colours, how can it be in such a crisis six weeks later? The situation is causing an erosion of confidence among the markets in the EU’s assessment procedures and processes. There might be a suggestion that there has been some sleight of hand in the processes through which banks have been securing passage—they apparently look fine, but they are not.

Those two aspects are bubbling away in Brussels. The more they bubble, the more unstable the situation becomes. That is where things stand.

Belgium is not just where Brussels is; it is a member state that has no Government and that has a stake in the bank. That puts things on a bit of a shooglie peg, does it not?

15:00

Yes—you are absolutely right. Belgium is expected to form a Government shortly, although that has been expected for some time. You are absolutely right that the issue that affects the bank to which I referred is that a caretaker Government, which is more or less what Belgium has, cannot take the necessary decisions that an elected Government can take. The caretaker Government is bound by strict limits, so if the bank were to have serious trouble, the Government’s ability to move swiftly might well be curtailed by dint of the fact that it is a caretaker Government rather than an elected Government.

Allied to that is the point that other banks in Belgium that have passed the stability test and have appeared to be fine are now being queried. That issue might yet prove difficult for Belgium. It has been declared that there is no risk to depositors—I am always fearful when people say that there are no risks, because that is usually the sign that there are risks—and that everything should be fine. The French and Belgian Governments have said that they will back up everything in every possible way, yet uncertainty remains.

Thank you—that is interesting.

I—and others, including Ian Duncan—have worked in Brussels. Many Belgians—at least some to whom I have spoken—might prefer to have no Government. The concept is interesting. Under the mechanisms that are in place, Belgium might be able to move more quickly than we think that it can, should any difficulty arise. In part, the market is seeing who it can try to pick on and expose next. The question then is the extent to which the deep pockets of other member states will come to the fore. A cyclical movement is involved and we do not know where it will end up.

The article on the common agricultural policy in the “Brussels Bulletin” comments on the joint position of the UK and Polish Governments. A relevant question for the future is whether, when the UK’s position and the Scottish Government’s position diverge on a fairly major issue for Scotland, that divergence could be reflected. If someone who read the article was not really acquainted with the issue and with the Scottish farming sector’s interests, they would think that what was described represented what we want, but it is not what farmers in Scotland want or what the Scottish Government’s position is. Is there a way to refer to that in your reports about vital national interests?

You are absolutely right—probably for the first time, a stark contrast exists between the declared UK position and the positions of the other constituent members of the United Kingdom. Those positions diverge. That can be reflected in the document and perhaps you are right that it should be.

More broadly, the difficulty for Scotland is that the UK Government’s view is being articulated and heard inside the institutions in Brussels. The test will be for the responsible cabinet secretary to ensure that, when such comments are made at this early stage, it is recognised that they reflect a UK position that has not yet reconciled itself with the position held by the other constituent members of the United Kingdom. That is a difficult test.

As for your first point about banks, one interesting aspect of the Belgian situation is that Belgium has had bank troubles before. One of its banks was bailed out not by the federal Government but by the regional Government of Flanders, which was an unusual step. That is an interesting contrast with the situation in Scotland, for example.

I draw the committee’s attention to the fact that the cohesion policy proposals will be published tomorrow, as the “Brussels Bulletin” says. It would help the committee to have a briefing that sets out the implications of those proposals for Scotland, what the key areas are likely to be and what the Scottish Government’s position is. Perhaps a Scottish cover note might help us.

That is absolutely right. I am looking at Iain McIver, who I suspect will be one of the chief drafters of such a note. We can bring that to our first meeting after the recess, which will be on 25 October.

I do not know whether you can answer this but with regard to the CAP legislative proposals the “Brussels Bulletin” refers to

“a voluntary additional payment (up to 5% of the national ceiling) for farmers in disadvantaged areas”.

Does that mean that the 80 per cent of Scotland that is officially classed as disadvantaged will get an additional 5 per cent payment?

I stress that the bulletin refers to a leaked draft but I thought that it would be useful for members to see it instead of waiting for the actual proposals to be published. Were those features to be reflected in the published document, the answer would be yes—the areas of Scotland deemed to be disadvantaged would qualify for the additional payment.

Scotland’s position is slightly different from that of the rest of its UK partners. For example, compared with others, we tend to lead in the banking industry and must ensure that we are well protected in that respect. I am interested to see how developments in Europe will affect us. Given that the industry is crucial to employment in Scotland and that any knock-on effects will be damaging to us, we will need to keep a very close eye on the matter. After all, we will need to know sooner rather than later about anything that might endanger our position to ensure that we can take appropriate steps to prevent our falling victim to problems in other areas.

You are spot on about the need to flag up such issues. Indeed, the cabinet secretary mentioned the transaction tax, which is a major topic just now. London is often seen as the centre of finance but, of course, as you rightly point out, Edinburgh and other parts of Scotland are also dependent on the industry.

I should also point out that the transaction tax, which is important to Scotland, will be heavily debated over the next few months and I recommend that this committee and some of the subject committees keep an eye on developments. It is not going to go away. Indeed, if it were to be adopted even in amended form that would have huge implications for Edinburgh, in particular, and other parts of Scotland.

As members have no more questions, I thank Ian Duncan for putting together his very helpful “Brussels Bulletin”. Do members agree to pass it on to other committees for their consideration?

Members indicated agreement.