“Brussels Bulletin”
Item 4 is our usual update on the latest edition of the “Brussels Bulletin”, which again reflects the fluid situation in Europe. The bulletin is put together by Ian Duncan. I ask Ian to give us this week’s messages from Europe.
Ian Duncan (Clerk and European Officer)
I start my report from Europe with the discussions about Cyprus. Members will appreciate that when I was writing the section on Cyprus the situation was fluid, and I am afraid that it was pretty much wrong the minute I had finished it.
I will bring members up to date on the situation. The vote on the package did indeed take place in the Cypriot Parliament. It had been suggested that that would be a difficult vote; rather, it was quite straightforward and easy, because nobody voted for the package. The rejection of the bailout package has begun a serious process. That is combined with the fact that Russia, which is a major depositor and user of the Cypriot banking facility, is also troubled by the situation and has declared that its loan to the Government of €2.5 billion may be in jeopardy if things are not resolved in the short term.
The situation in Cyprus has resonated across the whole of the eurozone. Given that Cyprus is one of the smallest economies in the eurozone, the bailout package should have been one of the most straightforward and the cost to the bailout mechanism should have been marginal. Despite those things, however, the package has all but destroyed the growing confidence in the eurozone’s systems, has created a significant problem for the euro inside Cyprus and has created repercussions for depositors not just in Cyprus but across the eurozone.
It is hard to believe that that particular package could have created a run on the banks, but that is exactly what it has done, and not just in Cyprus. In the other countries that fear that they, too, will have to take a second package, people are also removing money from banks. Interestingly, the deposits of depositors are protected from—one would imagine—almost everything except a tax. The bailout package would in effect be a tax and therefore no depositor is protected. Even the smallest deposit would be liable to a tax at just over 6 per cent, and higher deposits would be liable at a higher rate. The Government is trying to remove and adjust that, but we can see immediately that it would affect everybody who has a bank account. How quickly would people stop having a bank account if they were fearful that they would be taxed? At present, the banks in Cyprus remain closed and the Government is trying to find a package that will work.
Somewhat unhelpfully, the Germans have been clear in stating that perhaps the banks will never open, which I thought was a little bit dramatic. We can see the tension between Germany, which has an election of its own to face in the months ahead and is being very strong, and Cyprus, which is trying its best to find a solution that is workable. The Germans have said to the Cypriots that they should not go to Russia to seek an extension of the loan and the Cypriots have said that they will do that. They are in Russia just now, not only to shore up the loan that they already have but to look at other loan opportunities. That is the situation in Cyprus.
There are several other things to mention. The European Parliament has voted against the multi-annual financial framework, as is its right. Importantly, the Parliament set out some of its own preconditions. It has broadly accepted that the budget will need to be lower, but it does not want to be bound by the ministers’ particular take on it. The Parliament’s view is, “We are a sovereign Parliament and co-decider, and you should not be telling us these things—they must be decided in dialogue.” The trilogue discussions, which will involve the Parliament, the Council and the Commission, will take place in earnest in April.
One development that the Parliament is keen to set out is on the shortfall issue, which continues to bedevil the overall funding. You might recall that they ran out of money last year, which was going to affect various EU programmes. The Parliament says that we need to make sure that the books are balanced now so that there is no roll-over into the next cycle. That would mean that quite a significant amount of money would have to be found before the next MAFF is signed off.
There is a bit in the bulletin about the common agricultural policy. I will not go into that in detail, but you may wish to read it.
I know that a number of members are interested in the issue of small and medium-sized enterprises in the EU. There are a number of rules that are believed to be onerous to small businesses. The bulletin contains a list of those, but they include data protection, working time and recording equipment in road transport. Small businesses believe that those things are too onerous and they would like changes to them. European leaders are committed to making changes in those areas, and that should happen.
There are a couple of other small things in the bulletin. The dates for next year’s European elections have been agreed and will be 22 to 25 May. It is worth noting that, at the previous election, the turnout in Scotland was the lowest in the UK at 28.6 per cent. The UK average was 34.7 per cent.
Finally, the president of the European Council has declared that he will not seek another term. Van Rompuy will demit office at the end of his term on 1 December 2014.
I am happy to take any questions.
10:30
I just have an observation on the idea of people going outwith the European Union to try to resolve financial issues. They may be unofficially encouraged to do that because the EU cannot possibly continue to carry the burden of failing economies. There is a raft of them, from Greece and Italy—but not Spain as yet—to island countries, now. People want to invest in Europe, and particularly in Governments, because that provides long-term, secure investments. It can only be helpful if the Russians come in. Given that they are neighbours of the European Union, I would have thought that it would be in their best interests to ensure that the European economy is buoyant, because they want to engage with us in international trade.
I therefore think that it would be not a bad thing if the Russians came in, but a good, positive development. It would also take the pressure off Germany, which is looking towards an election. The Germans have little room to manoeuvre except to provide the kind of strong defence that would be unhelpful for any economy at this stage. I therefore think that Russian help would be a good development rather than a bad one. If the Cypriots are successful in that regard, it might encourage others to look for funding elsewhere. Just as we encourage our community organisations to look for funding other than Government funding, it is the same for countries in the European Union; we must explore the possibilities of venturing outside the European Union for support in hard times.
I do not disagree with that. Germany is not happy at the moment—full stop. That remains broadly the issue throughout the eurozone just now.
I think that the Germans’ stance may be more political than financial.
Yes, there are nuances to it.
I want to pick up the Cyprus issue with Ian Duncan. Where on earth did the idea come from of introducing state-sponsored looting of people’s private savings? Did they not realise the effect that that would have, with people queueing up to withdraw their savings from their accounts? I find it incredible that somebody in Europe came up with that idea as a means to solve the Cyprus issue. Has any value been placed on the impact that that would have on the Cypriot deficit? Would it cover it? I very much doubt that it would. I note Ian Duncan’s second point that depositors would be compensated with an equivalent amount from shares in the banks. Does that mean that people would get their money back at a later stage?
That is, if the banks open again.
Yes. However, I am astounded by the current idea, which is causing so many problems and further worry, unnecessarily, throughout the European Union.
It is certainly an unusual idea. It should have been the easiest bailout of them all because it is the smallest, so there should not have been any problems. Two things are happening here. First, there is an unsaid but implied belief that a lot of the money in Cypriot banks has come from Russia, not all of which is—
Okay.
Yes. We could fill in the blanks about what that money might be. The issue then is—Germany has implied a lot of this—that we should therefore not compensate questionable investors from Russia.
In applying the proposed rule, they would catch not only the big fish but the minnows, which would clearly be a trial. However, the amount of money raised would not be enough to offset the bailout; it would be about a third of the value of the bailout. Mr Coffey’s point is well made in that the idea seems to have been ill thought through. I suspect that, somewhere along the line, they believed that the offer of bank shares, which were meant to be underpinned by the future oil wealth of Cyprus, could be used to offset depositors’ losses. The shares may indeed be more valuable than the losses from their bank accounts, but there are a lot of qualifications around that involving use of the words “may” and “if”, which people did not pay much attention to as they whizzed off to the nearest bank machine and took out all their money.
On a different topic, I am interested in the “Clusters & Entrepreneurship” section of the bulletin. I note that, in the final budget, John Swinney put an additional £50 million into entrepreneurship in Scotland. With regard to the two calls for proposals that are highlighted in the bulletin—I am thinking in particular of the biosciences and renewables—does the mechanism for replying rest with the UK Government or could the Scottish Government be looking at this?
It is not for the member state to bid per se; that will happen more at the level of what are called regional consortia or non-governmental bodies, enterprises and agencies. That said, I suspect that the Scottish Government and its agencies—and, indeed, the UK Government and its agencies—will be seeking to encourage different would-be bidders to come together and draw down the money. In short, it is not a Government draw-down as such; one might look at it as Government-supported assistance to help others draw down the funding.
I have more of a comment than a question. I note in the “Language learning” section of the bulletin the comments by the language and culture commissioner, which, I have to say, are fairly apposite in light of the comments that we heard this morning. Obviously we cannot predict what the new multilingualism proposal will be, but how is Europe engaging with initiatives such as the one that we have been discussing? Can you add anything in that respect?
It is a good question. I have been asking what the multilingualism proposal will look like and, more important, whether it will come with funding to develop programmes and exchanges. From what I understand, they are looking again at expanding and enhancing various existing schemes, primarily those for language teachers and exchanges, which is one aspect of the proposal, and at encouraging students through the Erasmus programme to learn and study abroad, which is another part. Its likely promotion in businesses and the workplace suggests a move away from the academic or school base towards the business base, and another aspect is the encouragement of apprenticeships abroad through an exchange between like businesses—it might be better to describe it as an Erasmus for businesses. Although those are some of the likely aspects of the proposal, there is no indication yet of the money beneath it.
Fair enough.
On broadband, I wonder whether you can tell us anything else about member-state reaction to the national infrastructure database proposal.
The EU’s strong encouragement to move in that direction has not always been married up with funding to make the difference at the right level. I think that what is happening now is that an audit is taking place to establish the blind spots and shadows, find out the exact amount of coverage and look at the best way of targeting solutions.
We talk about the UK’s significant problems in rural areas, but they are as nothing compared with some of the problems that are faced by some member states to the east. The EU is trying to get a sense of the size of the problem so that it can target its finances at a more tailored solution. Moves to target the money in a more exact way will probably happen under the next multi-annual financial framework, but we must remember that there is money left in the current broadband allocation.
I have a couple of quick questions that Ian Duncan might or might not be able to answer. On the CAP, does the reference in the bulletin to
“capping payments for big farmers”
mean that there will be extra money for member states? Will the capping happen in member states and not across the board?
We are talking about an acreage cap, by which I mean that a farm over a certain size will not be able to get the multiplier simply on the basis of its acreage—it is usually an acre multiplier—but will be capped at a certain point. I think that the figures are in a previous bulletin, but I would be misleading the committee if I tried to remember them just now. What it will mean is that less money will certainly be spent from the overall national allocation at the higher end—in other words, the bigger farms—and because the money will be in the same envelope it should be available for—
So there should be a redistribution of sorts.
Broadly, yes.
My second point is on broadband, which I notice is also mentioned. In the figures that we saw previously, the money for telecoms was to be cut by something like 80 per cent. However, the bulletin states:
“The Commission wants Member States to set up national infrastructure databases. Any operator bidding for public money will also need to declare what infrastructure they own in the area ... to facilitate infrastructure sharing.”
That seems a sensible thing to do, but do we know whether there will be enough money for that? Do we know whether there will be less money for broadband, or is the money that has been promised so far safe enough?
You are right that the figures that the committee considered previously included an 80 per cent cut in the budget heading for broadband or the telecoms area. The European Parliament did not like that reduction, which it thought sent the wrong message, but it has not yet produced its preferred alternative. The trilogue negotiations that will take place in April should begin to reveal some of the details about what that funding line will look like.
I think that the Commission is being pre-emptive in recognising that, if there is less money, it needs to consider the best way of ensuring that that smaller amount of money is spent wisely and sensibly. That is why there is mention of infrastructure sharing and requiring operators to reveal what infrastructure is already in place. The notion is that there should be an audit of what is available to allow the money to go to where it can do the most good, with a focus on need, rather than the money simply being spent equally among member states.
Therefore, the answer to your first question is no, but we should know more in April. However, the Commission is trying to ensure that whatever money is available is spent in a more focused fashion.
I have one more question. You mentioned the trilogue discussions, which I understand involve the Council, the Commission and the Parliament. Can you explain the significance of those trilogue discussions in relation to what actually happens at the end of the day?
The trilogue discussions bring together the key players. As you will recall, the multi-annual financial framework is broadly co-decided, so it must be signed off by the European Parliament. However, the Parliament does not have the powers to sign off the individual parts of it. The trilogue is an attempt to ensure that negotiations take place to allow the Parliament to be content to sign off the whole thing.
In May and almost certainly through into June, the Parliament will state clearly what things it will not accept. Unless those things are changed, the Parliament will not vote for the whole thing in its plenary session. The Parliament will set the red lines for those negotiations. Some of them may be political and some will be totemic, but the Parliament will try to demonstrate that it is a Parliament with equal powers. There may be a little bit of posturing, but issues that are important to particular countries or regions—whether that is regional broadband or agricultural funding—will become the issues on which the negotiations turn.
As you will recall, the member states are keen to take the view, “We have done it now. Take it or leave it, because we don’t want any more meddling with the agreement that we’ve reached.” The Parliament’s view is, “Oh no, you haven’t. This isn’t acceptable to us and we want significant changes to the details.” The Commission’s job, more or less, is to hold the coats and to allow the Council and the Parliament to fight back and forward. When an agreement is reached, the Commission will draft up the outcome of that. However, the Parliament is determined to ensure that the complexion of the multi-annual financial framework reflects more what it wishes to see rather than what the member states would like to see.
If no agreement is reached, the current settlement will roll over, if you like, for another year. That would have advantages for some but disadvantages for others. For example, those who are likely to experience a significant cut in their agricultural funding would much prefer that this year’s budget rolls over, as they would then keep the money. There will be a lot of games played, with member states determined to get the best for their citizens.
I want to pick up on Rod Campbell’s point about language learning and the multilingualism proposal that will be presented in 2014. Would it be appropriate for the committee to draw Commissioner Vassiliou’s attention to our languages inquiry? We have learned quite a few lessons from what we are doing here. If we look at the figures, 82 per cent of 15-year-olds in Sweden are competent in their first foreign language, compared with only 9 per cent in Britain. That is a vast gap. Perhaps we can learn something from that proposal and, in return, offer the benefit of our own measures on language learning.
Jenny Goldsmith has just reminded me that Commissioner Vassiliou will be coming to our languages conference on Europe day in May, so we will be able to have direct conversations with her. That will be valuable.
10:45
On sustainable transport, I note that Aberdeen City Council came top out of three finalists—the others were Toulouse in France and Ljutomer in Slovenia. We are winning awards around the world.
I have a wee question about the Croatian accession and the fact that some countries are losing their European Parliament seats because the seat limit has been set at 751. I was interested to see that Germany will lose three of its 99 seats, bringing its MEPs to 96, which is the maximum allowed by the Lisbon treaty. The number of MEPs that Germany has in relation to the number of MEPs from other countries must directly affect Germany’s power in the Parliament.
Yes, it does. Because the number of European Parliament seats is capped, any new accession states are allocated seats from the existing quota. Those new seats will therefore be subtracted from existing member states, whose balance of seats will fall. Several countries are losing one MEP because of the Croatian accession.
Capping the number of seats has a name—it is something like degressive proportionality, which means that smaller member states are entitled to a greater share than an equal proportion would allow. For example, on a population basis, Malta would probably qualify for less than one seat, but in fact it has five seats because of the degressive proportionality principle. Smaller member states are always slightly more represented than the larger member states such as Germany, France and the UK, which have fewer seats because they are at the top end.
Commissioner Vassiliou and her colleagues are very interested in what the committee is doing and will welcome our report. We know that the director general is coming to the event. There will be great merit in launching the report with the commissioner in Brussels. I see no reason why the committee should not do that, as it will be a powerful document. It would be good to aim to do that in the autumn season.
Thank you. On your points about accession and seat quotas, if a country that already has MEPs gains independence, would that mean that the issue of a cap has less impact? That is a potentially political question, although I am trying to make it as non-political as possible.
I think that I can make my answer non-political. If a member state were to split into different components and the part that stepped away was smaller, the challenge would be whether that smaller new state would be entitled to more MEPs, given that the degressive proportionality principle would kick in. The question then would be whether the original state—which would have had a capped number of MEPs—lost MEPs from its entitlement. I do not know the answer to that. There might be a formula available to calculate it, although it would probably be a fiddly formula.
Okay.
I would have thought that if any state or country in the European Union—for example, Scotland, Spain or any other part of Europe—were to split from its original body, it would lose its MEPs initially, until it rejoined the EU and became a member state, and that its quantity of members would not be affected by the fact that it was a part of another country before. It would be an independent nation in its own right, so its population would be taken into account. Malta is an example. Whether other members of the EU would lose MEPs is another issue. They may well do so. There would probably be a cap on the number of MEPs and it would probably work through that system.
The challenge for the whole EU is that it is clear that, if it continues to grow, with accession states, and the number of MEPs is capped at 754, everybody will have to take a hit.
I have a tiny question about that. If a country’s population increases, does it get more members?
I imagine that it would be entitled to more members if there was a lot of increasing, but I think that a lot of breeding would have to go on over a period. You are right. If there was a huge population migration to a country and its population therefore changed, the formula would be applied, but changes are usually minimal, so the numbers do not move that much.
Jamie McGrigor is nodding. That is a hint of his prolific fatherhood. Do you have five children, Jamie?
Six, actually.
I wanted to draw the issue of accession or succession countries to members’ attention, given our future work on the referendum bill and aspects of our European position. That is just a wee marker that we will perhaps need to consider that matter so that we cover all the questions.
Yes. Absolutely.
Okay. Are members happy to ensure that the relevant committees get a copy of the “Brussels Bulletin”?
Members indicated agreement.
I think that the Infrastructure and Capital Investment Committee should be made aware of the award to Aberdeen City Council.
Yes.
That concludes our business today. No, it does not. I am sorry—I am away ahead of myself. We have to spend a bit of time considering our EU priorities report.