“Brussels Bulletin”
We move on to the “Brussels Bulletin”, which Ian Duncan prepared. He spent last week in Brussels so the bulletin will be bang up to date.
It is as bang up to date as I could make it at the time. I will touch on two issues. As members will appreciate, the big discussion at last week’s meeting was the multi-annual financial framework. The heads of state and Government met on Thursday and Friday last week. They did not reach agreement, which might not surprise you because there was a lot of press reporting about the reasons for that.
In talking with officials and various participants, I have found a number of interesting issues to note. The first is that the main player is now the permanent President of the European Council, Herman Van Rompuy, who is seeking to broker a compromise. His work on the day to encourage support from the various member states was very interesting.
A couple of the major budget lines were adjusted significantly on the day to encourage support. The first were the major cuts that might disturb Willie Coffey. For example, the connecting Europe facility would receive a fairly significant cut, which would affect broadband. The infrastructure for energy, transport and telecommunications budgets would be cut to achieve increases in other budget heads, notably farming.
The French were insistent that the farming budget should not be touched; they demanded that it retain parity, so it has been raised by €8.3 billion, of which €8 billion will go to direct payments for farmers. Cohesion funding has also been increased by €11 billion, which is a not insubstantial amount, primarily at the behest of the eastern European member states.
It is always very interesting to look at the bottom of the papers, where we get something called minor adjustments. They are the most amusing part of it all because they are the buy-offs for different member states. For example, Hungary got €1.2 billion for one particular region as a way of ensuring that it is more supportive, Malta got €200 million and Cyprus got €150 million. That money is to encourage support and keep things moving smoothly.
It is also worth noting that there was a lot of discussion about the UK position and threatened veto. In the end, the UK was not the troublesome member at the table. It appears that the UK Prime Minister would have been willing to accept the German compromise, which would have been a €100 billion cut to the overall budget, taking it below the €1 trillion mark. The people who were the most difficult at the meeting were the French because of farming and the eastern European member states, notably Romania, who felt that they were losing out in this particular round of negotiations.
At the previous committee meeting, I promised to bring the committee a paper on the situation. Things have moved on but I should be able to do that for the next meeting. I am giving you just a quick update now.
There are a couple of small things to mention about the eurozone. First, Cyprus has just received a major bank recapitalisation of around €15 billion. Secondly, France has just lost its AAA status; Moody’s has downgraded it by one notch. That is important because it means that two credit rating agencies have downgraded France and certain pension funds will only invest in countries that have three AAA ratings, so France will experience significant difficulties on the bond market, which will be uncomfortable for it.
We touched on gender equality and gender quotas. Commissioner Reding has made a watered-down proposal that has been signed off by the college of commissioners. It is more or less about self-regulation, which is exactly what she promised would not happen.
Members might remember that, at our previous meeting, I mentioned that Spain had vetoed the appointment of a male member of the governing body of the European Central Bank. That veto was overturned by the Council of Ministers and the Luxembourgeois member was appointed.
I am happy to take questions on anything else.
On the gender quotas, the bulletin says that sanctions would not be taken against a company if it could demonstrate that it has made every reasonable effort to appoint a woman. What are the sanctions that can be taken if the company cannot prove that?
You have touched upon a good point. I think that the sanctions are mostly fines but the chances of them ever being applied are almost nil because, I would have thought, it would be easy for a company to assert its ability to demonstrate that it did all that it can but failed in the effort. That is why the measure has not been applauded by the various groups that it was meant to address.
I was looking at the Cypriot bank recapitalisation and I noticed that the size of the potential bailout is speculated to be between €11 billion and €16 billion—that is half of Scotland’s whole budget. We have a population of about 5 million, and Ian Duncan tells me that the Cypriot population is about 500,000.
I have just looked that up—the Cypriot population is 1,116,354.
It is still an issue.
Absolutely.
Thank you for looking that figure up for me—you must have known that I was going to request that.
I had a feeling.
That puts into perspective what we are talking about with some bailouts—half of Scotland’s national budget is being given to the banks in Cyprus. That makes me think.
I have a concern about the trans-European transport network. I see that the regulations are to be revised. One of the amendments that have been tabled to the proposal is to
“strengthen the concept of green corridors”.
That strikes me as an opportunity for Scotland to get our sea passenger routes designated, as they are much more environmentally friendly than road routes. Would it be in order for us, as a committee, to write to make the point that we would want to have that designation incorporated? I am passionate about Rosyth port having been removed as a passenger terminal that interconnects with mainland Europe. I know that it is not the Government’s fault; it is the fault of commercial operations. If it was designated as a green corridor, that might help with our other arguments when we come to look at state aid rules.
Perhaps we could get a wee bit of research on that for the next meeting so that everybody is briefed about what exactly that means.
I have a little more information. The Infrastructure and Capital Investment Committee has been agitated by this particular proposal, too, so it will be worth while checking where it is on its particular issues. I will bring back an update on that and how we can progress the issue at the December meeting.
I want to pick Ian Duncan’s brains about the credit rating agencies, which is something that I may have mentioned at a previous meeting.
The rating agencies seem to have the potential to impact on national economies, and I sometimes wonder just who exactly they are. Standard & Poor’s, Moody’s and Fitch Ratings have been around for a while, but to whom are they accountable? Who appoints them? How do countries or member states in the European Union know that they have been treated fairly by those agencies? To whom would you contest the assessments that they come to?
Ian Duncan has just mentioned the impact that downgrading a country such as France from AAA to AA1 status—whatever that means—could have. I have had a quick look at Moody’s rating criteria. There does not seem to be an awful lot of difference between the AAA and AA1 statuses to me, but the impact that that can have on countries is severe. Who are they, who appoints them, how are they regulated and how do we get control and prevent them from making unfair, biased and bad assessments about our countries’ fitness?
That is a good question. They are in fact private companies and so the oversight is very limited. You will be aware that the financial collapse of a few years ago was because the AAA status bonds were anything but and they collapsed. The ratings agencies’ track record is not particularly strong in some areas.
There was an attempt in the European Union to have greater competition by creating new agencies, but that was frustrated by the power of the existing agencies. It was a difficult thing to achieve because, for different reasons, member states must ensure that they, as best they can, secure the AAA rated status or the highest status that they can. The agencies have power not to control but certainly to frighten member states into doing certain things. The European proposal was more or less dead in the water the minute that it was announced. It did not go anywhere; it is still sitting there gently bobbing, but it is not being progressed at any great pace.
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There is no doubt now that the impact of the ratings agencies on the eurozone countries and on certain members in particular is significant. You will recall that France has been downgraded by one notch, while Greece retains junk status. You could not invest in Greece now even if you wanted to, because no investment fund would touch it with a barge pole. The agencies’ power is very strong indeed.
Retaining AAA status gives a country a huge cachet and makes a big difference in the other direction, so countries do a great deal to retain that status. That empowers ratings agencies far more than almost anybody else to control and drive policy. The ratings agencies are one of the motivations behind austerity, as they believe that the cuts are more important than investment.
That was very helpful. Are the three ratings agencies that are always mentioned American companies?
Two are American and one is French.
Which one is French?
I knew that you were going to ask me that.
It is not Moody’s.
No, it is not Moody’s.
They all have different criteria. I cannot imagine that the French agency would downgrade France from AAA status, although we might well ask why not.
Those three companies seem to have a huge influence and impact on the world economy, and yet they are not accountable to anybody. We do not know whether the criteria that they apply are fair, reasonable or otherwise, and there is nothing that we can do about it.
There is a great fear of politicisation. You will recall that, at certain points, the downgrades have been used in such a way as to pre-empt certain things. During the Greek crisis, for example, it was the downgrades from the ratings agencies that pushed things faster towards the need for a broader resolution. Their power is great, and as far as I am aware there is no prospect of that being reformed any time soon.
I have a couple of points. First, I am not sure where we are going with the timetable for the banking supervision regime. Perhaps you can take that a wee bit further. What will the next move be?
There is a big debate between the countries within the eurozone that would be subject to the broad banking supervision rules, and those outwith the eurozone. There is now a broader recognition that such a situation would be unstable, and more time is therefore being spent on trying to reconcile those two elements. Too many member states are now saying that such a regime will just not work, as one cannot regulate only part of Europe’s banking houses.
Although the regime is scheduled to be implemented in January 2014, there will be all to play for in the early part of next year. I would have thought that there would be serious meetings—in fact, there is a meeting scheduled for the second week of January in which finance ministers will try to wrestle the issue to the ground. After that, things will become a bit clearer with regard to whether the timetable will be met.
Secondly, I was trying to work out the significance of the EurActiv website’s list of 40 people, a considerable number of whom I have never heard of.
I put that list in as an “and finally” point, just to show that the EurActiv website is quite important in the European Union, as it breaks a lot of stories and leaks. I had a strong suspicion that the committee would probably not have heard of the top 10 people, and I thought that it would be useful for you to be aware that the most powerful people in the European Union are rarely the people whom you would think are important.
You will see, for example, that the British Prime Minister and the Secretary of State for Foreign and Commonwealth Affairs are quite a long way down the list in terms of their impact, whereas the number 1 person is a Liberal Democrat MEP called Sharon Bowles, who is considered to be most influential in her chairmanship of the Economic and Monetary Affairs Committee. Malcolm Harbour is a Conservative who chairs the Internal Market and Consumer Protection Committee.
Did the website make some kind of attempt to justify the order?
It did—it carried out a broad consultation. This is the first time that it has produced such a list; I put it in primarily to show that influence in Europe is not held by those whom you might expect to hold it, but rather by people whom you will never have heard of. You could pick up the phone now and those people would happily chat to you in a way that the Prime Minister probably would not.
Various committees of the Scottish Parliament have quite regularly met and chatted with a number of people on the list, from Jonathan Faull of the directorate-general for internal market and services to Malcolm Harbour and Sharon Bowles. Members might remember that Richard Corbett is a former MEP. He lost his seat in the north of England and is now the chief adviser to the permanent President of the Council. Andrew Duff has given evidence to the committee in a previous incarnation. The list is a surprising reminder that power is not always held by the people we expect.
I refer to the section under the heading “Council President’s proposal”. About halfway down that page, there is a reference to
“a new system under which the country would pay partly for its own refund.”
That is about common agricultural policy funding. The proposal was rejected by Sweden and Germany, I think. Was the proposal ultimately thrown out altogether or is it still on the table? If a country is going to get a rebate but will pay for its own refund, that knocks a bit of a dent or hole in some of the arguments at the national level that we are hearing.
The rebates are among the most controversial components of the budget primarily because they are seen as serving only one member state. The UK gets the largest rebate, of course, because it failed to get a significant share of the CAP funding during initial negotiations, but even Germany, for example, will get a rebate, although admittedly a smaller one.
The current proposal is that Britain self-finances part of its refund. That proposal is still on the table, although I suspect that, as members can appreciate, the UK Government is not awash with support for it. All of those things will remain on the table until everything is finally brought together in the wee small hours of a day many months from now. We will know only then whether the rebate will remain at its current award level.
Will you keep us informed about what happens?
Yes.
That is fine, as it could be important.
We are really pushing up against our timescale, so Jamie McGrigor should be quick.
What will be on the table in February 2013? Who will have organised what is on the table for agreement?
I suspect that Herman Van Rompuy will bring forward another proposal. At that point, the Irish will have taken over the rotating presidency of the European Council, and they, too, will be involved in the discussion. However, it is horse trading.
Ireland is a good place for that.
It will be a challenge to bring about a resolution in the short term, but approaching deadlines tend to clear minds. I do not think that a resolution will be brought about in February. Work will continue, but Herman Van Rompuy will be the person to watch.
Are members content to send the “Brussels Bulletin” to the relevant committees?
Members indicated agreement.
Will the small amendment that we talked about before the meeting be made?
Yes. We can make the very small amendment that was suggested. That will not be a problem.