“Brussels Bulletin”
Agenda item 3 is consideration of the “Brussels Bulletin”, which our European officer Ian Duncan will talk us through.
Let me begin at the beginning. As per usual, the biggest section in the bulletin is on developments in the eurozone. I have tried to pick up some of the strands in which the committee expressed an interest at the previous meeting. For example, Willie Coffey spoke in some detail about credit rating agencies, and I have provided a section on what is going on in that respect and a wee bit of background on page 3 on how they got to their current position. It would be worth while to have a little look at that. At the top of the second column on page 2, I detail some of the features that the EU would like to introduce to regulate credit rating agencies, although I draw members’ attention to the quote from Moody’s at the bottom of that column, which I think has an ominous overtone. It has said:
“While we fully support the G-20 agenda on credit ratings, we had expressed significant concerns about the potential market ramifications of some of the proposed policy measures.”
The best thing we can say is that it is clearly not happy.
The meeting on banking union finished at dawn, and a proto-agreement appears to have been reached. Again, a compromise had to be brokered between the French and the Germans; as you will recall, the Germans did not want their smaller banks to be regulated, while the French were very keen for everything to be regulated. It seems that a compromise between those two positions has been agreed. The smaller German banks will not be regulated in the first instance, but the issue will be considered later.
I also put in a “stop press” item almost for my own amusement. One finds odd things happening in these negotiations and, in what seems to have been an effort to buy off the French, there was a big discussion about a suggestion that they get the headquarters of the agency that would take forward this work. It shows that, in these negotiations, everything is up for grabs.
Greece will receive its money on 13 December. However, a rather ominous note is that the Greek economy has shrunk by 25 per cent in the past five years. As for Italy, the party of the former Prime Minister, Silvio Berlusconi, has somewhat unexpectedly withdrawn support from Mario Monti, who has now declared that he will stand down. Exactly when that will happen is unclear, but it is likely to be in February. As you will see, the markets are already perturbed by the situation and the EU is uneasy about what it will mean. All I can say is: watch this space. Lots more is going to happen.
It is also worth noting the consultation on electricity generation and capacity mechanisms, which I mention at the back of the bulletin. The closing date for that is 7 February 2013.
Following Helen Eadie’s interest in state aid, I have covered some of the current work on that issue. I note that this is just the beginning and members will get a bigger paper in the new year that touches on some of the other stuff, but I thought that this starter for 10 would show the committee where things stand.
Finally, I am sure that members have read in the papers about the situation with alcohol pricing. In the second paragraph of column two on page 6, I provide a link to the full text of the opinion, should members wish to read it.
I am happy to take questions.
Do members have any comments or questions?
I have a request for further information. Do you know whether, in the negotiations that went on last night, there was any discussion of the future programme for banking union?
As you will appreciate, I was reading the material and trying to find out information quite early this morning. The people involved are trying to put together a timetable. They still believe that, if the heads of state and Government are able to sign it off at the upcoming summit, it should be implemented at the beginning of next year as the first step in the sequence.
As you will recall, the bigger issue is the tension between those within the eurozone and those outwith it. There seems to be more agreement in that respect, but it remains to be seen whether it will hold throughout the forthcoming Council meeting. The timetable could easily be upset. I will be able to provide more information when I have read the paper more thoroughly; I was able to take only a cursory romp through it this morning.
It certainly appears that the issue will be of high political significance in the months ahead.
I see that the president of the eurogroup, which comprises the 17 countries that use the euro, is standing down. The group meets a month before the official EU meetings, but how much influence does it have on them? Does it meet openly or in secret?
Very few groups in Brussels meet openly and, if they do, they tend to have their discussions before the meeting itself. The answer, therefore, is no—the group is not very open. It is influential, because it brings together the finance ministers of the eurozone countries. On any issues connected with the eurozone, it will have the most important voice. The UK and other non-members of the eurozone have observer status at those meetings, so they can participate on an invited basis and are aware of what is being discussed.
As the committee will know, the meetings usually take place the day before the formal meeting of the European finance ministers. The group is probably the most influential body in the eurozone and one of the most influential in the whole financial area.
10:00
So the president of the eurogroup is the closest thing that we have to a president of Europe.
He is the man who controls the big bag of money, which is quite influential in itself. Jean-Claude Juncker is the Prime Minister of Luxembourg, so the influence of a very small state is very large.
I do not want the committee to think that I am pursuing a vendetta against the credit rating agencies, but I am interested in the points on them that Ian Duncan put in the bulletin. It came as a surprise to learn that the agencies can have shares in the companies that they rate. I am astounded by that, to be perfectly honest. However, I was pleased to see that, in January, the European Parliament will legislate to regulate the agencies so that such practices cannot happen or at least will be controlled.
With regard to Ian Duncan’s comments, I am not surprised that one of the agencies is not particularly happy about the proposed measures. The agencies have existed for a long time, but they have come to public attention only since the economic and banking crisis. I am amazed that there has never been any regulation of them until now, and I am pleased that it is coming.
I share the views that Willie Coffey has expressed. One point that I picked up is that
“no rating agency may hold more than 10% shares in any entity they rate.”
That holding of shares is an aspect that I had not thought about. It has a huge influence on the way in which money moves around the globe, so I welcome the fact that there will be limitations on it.
Dr Duncan’s point about the European Central Bank being located in France is not unimportant. We have to admire the French for their speculative building—after all, they built the palace of Europe in Strasbourg before there was any agreement on where the Parliament would be located. They seem to get in on the act all the time. We have something to learn from them in that regard, because such things bring massive employment opportunities in construction and all the rest of it.
I agree with Willie Coffey that broadband is an important issue across Europe. I gather that, although £1.5 billion of financial support is coming to the UK, £28 billion has been earmarked for broadband across Europe. That is powerful money, which underlines how critical broadband is for the more rural parts of Europe. I would welcome any developments in that regard, and I would be glad to be kept updated on how broadband is being rolled out, because it brings employment opportunities, too.
Another point that has been highlighted concerns state aid. I note that a big general review is taking place, but I am concerned—as I highlighted at our previous meeting—about the power of officials, without recourse to elected representatives, to change the state aid rules in a way that will impact hugely on areas such as Scotland. I have circulated to all members of the Parliament a letter that I wrote to Commissioner Almunia to outline my concerns about that. If the rules are changed, we will no longer have the Avivas, the Amazons or the rest.
The rules are likely to be changed next week, so that is the deadline. Unless my colleagues round the table take urgent action—I also look to the convener to impress on her colleagues in Government the importance of the matter, and I have discussed it with the cabinet secretary and urged her to take action—it will mean that Scotland will no longer enjoy the special category C for regional state aid. We will lose a huge amount of employment opportunities because of that, so the matter is not unimportant. I hope that colleagues will pick up on the email that I circulated to them yesterday.
I was really interested to read in the “Brussels Bulletin” about minimum pricing for alcohol. We have all picked up on the issue in the newspapers over the past week. It is clear from the “Brussels Bulletin” that the UK Government is being urged to ensure that the legislation on minimum pricing does not proceed, because it is the member state that would be answerable.
The European Commission uses legalistic and cautious language, but it suggests that minimum pricing for alcohol would be against competition rules and would create “market distortions”. Labour made that point all the way through the debates on the issue. Certainly when I spoke in committee and in the Parliament about minimum pricing, I made the point that is mentioned in the “Brussels Bulletin”, that the
“unintended consequence of the law would be a boost in profits for supermarkets and retailers”.
In effect, Government policy will put money into the pockets of retailers and supermarkets.
On that point, I was under the impression that the UK Government supports the Scottish Government’s position, although that is not mentioned in the “Brussels Bulletin”. Helen Eadie can make those points, but I think that the UK Government is at one with the Scottish Government on the issue. Ian Duncan might be able to clarify that.
The UK Government has stated that it would support the Scottish Government’s position, which closely mirrors its own. It is seeking to contest the Commission’s opinion. It is in dialogue with the Scottish Government to find out how best to take things forward, and we will find out on 27 December what submission has been made by the UK Government and the Scottish Government.
I understand that the whisky distillers have taken legal action, which is being considered in Brussels. A lot will hinge on the outcome of that.
Legal cases from members of the alcohol, tobacco and drugs industries do not always succeed, though, Helen.
I am slightly confused as regards the different proposals. The “Brussels Bulletin” states:
“The Secretary General of the Commission has written to the UK Government outlining the concerns of the Commission with regards the Scottish Government proposals for alcohol minimum pricing and recommends the UK abandon the current proposals”.
Does the reference to “current proposals” relate to the UK proposals or the Scottish proposals?
I see what you mean. The confusion might be my fault. The Scottish Government’s proposals are further advanced than the UK Government’s proposals. The proposals from Scotland have been considered by the Commission secretary general and those are the proposals that are being discussed. However, as you know, the UK Government is responsible, in this instance, for the Scottish Government’s particular policy and must be an advocate for that.
The UK Government is supportive because the Scottish policy exactly mirrors its proposal for minimum pricing, so it is likely that both Governments will be on the same page when it comes to the position that they put to the Commission authorities. It just happened that Scotland was quicker and is therefore more advanced in its proposals.
Right, so the Commission is asking the UK Government to abandon the Scottish proposals. Is that correct?
Because the UK is the member state.
Yes, in a sense. I know that it sounds odd, but because the Scottish Government is part of the UK authority, if you like, in that regard, the UK is being invited to not go forward with the proposal. The internal mechanism for that will be more complicated, I imagine.
I reiterate what my colleague Roderick Campbell said about the cases that have been brought against the Scottish Government. There can be significant health issues, and in the case that was decided this week with regard to the display of cigarettes the health issue was upheld. We must remember that the competition rules were always there and we were always aware of them. The exception to the rules was always about the health benefits. Where we are has not changed—the health benefits are still the issue.
The legal test to which Catherine Day has referred is that, on balance, the evidence provided by the UK Government and the Scottish Government is not adequate to justify the proposal. That is why the issue is more difficult. As Catherine Day has assessed the evidence, I suspect that further evidence—or a greater depth of evidence—will need to be supplied in order to justify the distortion in the market on the basis of the health benefits. That will be the test.
I notice that the bulletin gives a link that we can click on to get the full text of the opinion.
In response to Rod Campbell’s point, the reality is that, in a case about state aid rules that was taken by the gin industry in the Netherlands, the European Commission found that a similar measure was anticompetitive and it was not allowed. We could find ourselves in the same position. The European Union has a policy on alcohol, so the outcome will depend on whether minimum pricing fits into the EU’s overall alcohol policy.
I understand on the surface the argument that minimum pricing will have the unintended consequence of providing a boost in profits for supermarkets and retailers, but my understanding is that, if the policy works—which we fully expect it to do—it will not do that because the extent to which people purchase these products will diminish. That is the whole point. If the policy failed and people generally ignored it, the increased price would yield a profit, but if the policy works, it will not do so.
The Sheffield Hallam report estimated that £120 million to £130 million of profit will be generated for the retail sector. I would not have a problem with that if an additional levy was to be imposed on the private sector to draw that money back into central Government to cover the cost of ambulances, police and all the other social costs of binge drinking, but that has never been agreed by the Government. If the Government changed its view on that, I would support it on the measure. However, as long as you are putting £120 million a year into the pockets of Tesco and others, you can count me out.
Okay, I think that we can see that this is obviously a complicated issue.
Members will see that, in the final paragraph under “Alcohol Pricing”, Ian Duncan refers to Alex Neil’s visit to Brussels last week. I suggest that the committee writes to the cabinet secretary to ask for an update on where things are as far as the EU goes—we have to be careful not to tread on the toes of our Health and Sport Committee colleagues, who obviously have a great interest in the policy—so that we can find out how he got on in Brussels last week and the Scottish Government’s intention in going forward. Is the committee happy with that?
Members indicated agreement.
Are we happy to send the “Brussels Bulletin” to all the relevant committees? The specific committees that we should target include the Justice Committee, the Equal Opportunities Committee and the Health and Sport Committee. Is that agreed?
Members indicated agreement.