European and External Relations Committee

Meeting date: Tuesday, January 31, 2012

Official Report 347KB pdf

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“Brussels Bulletin”

Agenda item 3 is the “Brussels Bulletin”. Do members have any comments?

On the financial transaction tax, which is mentioned on page 5, what level of taxation is being talked about? I have not been keeping up well enough on the issue, so I do not know. If the UK did not implement the tax, would it lose out or would it benefit because it would gain financial business?

That is a difficult question to answer because there are two strongly held but diametrically opposed sides to the argument. The UK position is that, were it to adopt a tax, it would lose out. The UK’s desire to be outside the tax means that, potentially, it could benefit from others who wish to avoid the tax. The flipside, which is mentioned in the bulletin, is the situation in which the UK is outside the tax but still subject to the restrictions of it. The UK would have no voice in the European Council meetings that would determine and drive the tax, but it would be subject to it. The views on the issue are diametrically opposed and it is not yet clear how that will be resolved.

On the rate, the discussions are centring on the nature of the financial transactions that would be subject to the tax. That is the first step. The second step, which is probably some way away, is to consider the rate at which the tax would be levied. The speculation on that is wide and goes from minimal to maximal rates. As yet, there is no consensus on the rate or on what transactions would be liable for the tax, and nor is there consensus that the tax would be levied on all member states. The UK appears to be vehemently against it.

The bulletin contains a great deal about the circumstances, but I want to get an idea of the general feeling among those who are in the know. There is a huge difference between the two views. Is there a precedent for the introduction of such a tax? Would it cover every country in the EU as—the bulletin points this out—has been suggested by a commissioner?

That is yet to be resolved. When the EU has sought to introduce levies in the past, they have not been country specific and they have not excluded particular countries, but have been pan-European levies. I could be wrong, but I know of no precedent in which a group of member states applied a tax or levy and others did not. I do not know of any examples of that, although that is not to say that there is not one. It would be peculiar to have a system that did not involve everybody. That would be difficult, especially with financial transactions. It is not as though a man pops in with a fiver and hands it over the counter—it is all done remotely and electronically.

15:45

I have a quick follow-up. VAT is a European tax—I believe that it was set up originally under a European directive—but I think that I am right in saying that the rate varies among countries, although it is not the case that there is no VAT in some countries in Europe.

That is right, but the amount of money that goes to the EU from VAT is fixed. In other words, the variation is domestic, but the contribution is fixed.

Okay—thank you for that.

It is very early days for the financial transaction tax. France has started the ball rolling, but if the euro zone plus countries decide to go ahead with the proposal, it is difficult to see how, in practice—not least, for the reasons that Ian Duncan raises—the UK banks could avoid it in their dealings with their continental counterparts. It could be suggested that they would not necessarily need to deal with their European counterparts, but that would be rather ridiculous because, of course, they would have to. It is difficult to see where the proposal is going and how the UK could have a carve-out.

It is extremely important that the UK be involved in the discussions. If it is excusing itself from the new configuration, it is difficult to see how, as a member state, it will have the necessary influence if it is not part of the discussions but is just in the room as an observer, as if it were a third party and not a member of the EU. It is a debate that will grow arms and legs, particularly now that France has set the ball rolling through its unilateral action.

The position of the UK Government is not that it is against the tax per se but that it is against its non-global introduction. Its argument is that there would be commensurate impacts on the major global centres of London and Edinburgh.

It is difficult to see how things will pan out. It is hard to speculate on a second veto. [Interruption.] Bless you. [Interruption.] To sneeze three times is lucky, apparently. As a taxation issue, the financial transaction tax fits into the category of a measure on which unanimity is sought, as far as possible. It is early days and there is a French presidential election coming along, so there is no doubt that we will hear a lot of political rhetoric on the issue in the next few months. When we get down to the detail, the FTT will be something to keep an eye on because, as yet, it is unclear how it will unfold and what the outcome will look like.

You might remember that, when the Commission was talking about ways of raising funds for the EU, the transaction tax was one of its preferred options. It thought that it would be a good way of getting money in in a transparent fashion, but things have moved on slightly since then.

On page 8 of the bulletin, you talk about the common organisation of market reform—the CMO. You say that

“Struan Stevenson MEP, rapporteur on the reform of the CMO ... has produced a report”

and that he

“is inviting comments on the document, with information to reach him before 16 February”.

Is this committee making a submission?

I suggest that we draw the matter to the attention of the Rural Affairs, Climate Change and Environment Committee. I have already informally drawn it to the attention of the clerks to that committee. If it has an appetite to respond, I imagine that it can do so.

I suppose, also, that individuals can respond as they wish.

Absolutely. The purpose of Struan Stevenson’s request for information is to inform his deliberations as rapporteur.

We will ask the clerks to the Rural Affairs, Climate Change and Environment Committee to have a look at the matter, because it may represent an opportunity for it to offer early input.

Sticking with page 8 and on fish, further to a press release from the Scottish Fishermen’s Federation in the past few days, I am aware that the most recent discussions on mackerel—the “mackerel wars”—have broken down. I think that there is to be a meeting between the Scottish Government and the sector this week or in the very near future. The bottom line is that they are now looking to the EU’s sanction being available. I wonder whether Ian Duncan has any further intelligence on that issue, which seems to be live at this point.

I was in Brussels last week. Unfortunately, I wrote the bulletin at the beginning of the week in order to meet the deadline and had the meetings afterwards, so none of that information is in the bulletin. At that point, the prediction was that the talks were definitely going to break down, because there had been no meeting of minds and nor was there any possibility of a meeting of minds. Positions are so entrenched that there seems to be no prospect of common ground being found, and the EU is now determined to proceed with its trade sanction as quickly as it can. People were talking about that happening within a matter of weeks rather than months. At first, the sanction had been put on the table as a threat to encourage the talks to move towards a resolution, but that has not worked; therefore, the EU is now bound to introduce the trade sanction as a matter of urgency.

I predicted that we would arrive at this situation. The Icelanders are simply playing for time. At the previous meeting at which we discussed the matter, I felt that we needed to move on it sooner rather than later because the talks were going in that direction. The next meeting of the agriculture and fisheries council will be on 23 February. Is nothing going to happen between now and then?

The next meeting of the agriculture and fisheries council will be on that date, but we are talking about a trade sanction. It will certainly be discussed at that council meeting, but I think that the EU will proceed with it before that.

We wrote to the Scottish Government to ask it what is going on, but it has not yet got back to us. We will try to require that as a matter of urgency, to see what part the Scottish Government is playing in this and what its prognosis is on an outcome. The mackerel season is advancing.

I wonder whether there would be any mileage in requesting that the Scottish Government speed up the process. Rather than respond to us, it could simply try to activate the action against Iceland, so that we are not spending time talking to each other when we could be doing something.

From my informal discussions with the Scottish Government, I know that that is at the top of its list in this area and that that is what it is trying to do. The Scottish Government is doing all that it can to make the trade sanction happen.

The European Union is supportive of the idea, but how keen would it be to assist us in that process? Is there anything else that we should be doing to support such action?

The trade sanction would be the EU’s trade sanction and the EU is not only supportive, but is leading on that. It had hoped that the negotiations would have reached a resolution by now, which is why it has not moved down that route. It used the sanction as a threat, but that has not worked; therefore, I do not see any impediment to the EU’s moving relatively swiftly—in European terms, admittedly—to resolve the matter. The Scottish Government, the UK Government and the EU are now all keen to move ahead with the sanction in order to achieve a sustainable resolution, as are the international bodies that are looking at this.

I suggest that we follow up our letter to the Scottish Government in writing.

Yes—we are not really waiting for a response now. The Scottish Government has not responded in a positive way, and we made a prediction that has come true. Now, we simply want the Government to exercise its influence to get the sanction introduced as a matter of urgency. We could leave it at that.

Yes—that is fine.

Okay. I thank Ian Duncan for putting together the bulletin. We know how much of a movable feast the euro zone crisis is. Perhaps we could have a wee update on what happened yesterday with the fiscal compact, which was supported by 25 out of 27 member states, and how you envisage that moving forward—if you have a crystal ball.

If I had a crystal ball, I would be much in demand.

You could give us the lottery numbers for Saturday, thank you.

That is right.

Although the discussions led to 25 member states agreeing to sign up to the fiscal compact, two—the Czech Republic and the UK—do not wish to move in that direction. The political leaders in the Czech Republic at the moment are very Eurosceptic, which is one reason why they did not sign up. The current ambition is for the document to be completed in draft form and discussed and agreed at the March council.

A number of smaller issues are still unclear or as yet unresolved, some of which concern observer status for states that are signed up to the compact but which are not members of the euro zone. At present, in order to gain observer status a country would have to have agreed to the compact even though it was not in the euro zone. That would exclude the UK from having observer status, which would be quite controversial, so a number of negotiations are going on around that. The sherpas—a fantastic term—are currently working on that to find common ground.

On a related matter, which is the bigger issue of the Greek sovereign debt and the attempts to resolve that situation, the Greek Prime Minister Lucas Papademos has said that he expects an outcome by the end of this week. Whether it will be to everyone’s liking remains to be seen and the situation remains an impediment to payment of the next instalment of the €130 billion bail-out money.

The next step will involve bringing together finance ministers to discuss the detail of the fiscal compact. It seems to be quite clear that the UK will not be part of it; there is no indication that it will. The UK would like to have observer status, but that is a sticking point and it is one of the big issues about which President Sarkozy is insistent.

All that is taking place against the backdrop of the French presidential elections, which means that politics will play a greater role than might otherwise have been the case. Much of the rhetoric in Brussels last week was schoolboyish: the French foreign minister was saying things like, “You should have been downgraded, UK. I don’t know why you weren’t”. There were bizarre conversations: “Our industrial base is bigger than yours.” “Oh, no it isn’t.” “Oh, yes it is”.

Some quite high-level discussions were unfolding at the beginning of the week. There is a great deal of politics still to unfold, a lot of which is not particularly nice and not very elevated either. That is the broader picture.

Another curious thing is that yesterday—30 January—there was a general strike in Brussels, so the whole city ground to a halt. The only things that were moving were EU limousines taking people to their meetings.

I noticed that the Prime Minister of Denmark was very strong in her statement a few days ago about her expectations for the next six months. I wonder whether—given Denmark’s EU presidency—she would have to go in and referee some of the antics that you see going on.

That role is sometimes a bit like being a referee; one aspect is trying to manage the rhetoric as well as the reality. The rhetoric is all very interesting when one reads it in the papers, but the truth is that the issues will be resolved in a very closed environment in which the participants will try to bring together a workable resolution.

I suspect that all participants—including the UK—want a workable resolution. They do not want the compact to fall apart because that will raise issues that are far greater than the potential loss of face from joining in. However, that is just my speculation.

On that subject, I understand—although, as the convener said, the crisis is very much a moveable feast—that there will be a role for the European Court of Justice in the new compact.

It would be helpful for committee members if the Scottish Parliament information centre were to look at the potential implications of a system in which the court of the entire EU also provides a function to a smaller subset of member states in relation to specific items of jurisdiction that are not part of the EU body of law. That is a first since the establishment of what was then the European Economic Community, and it has potentially significant implications for the EU body of law.

I am looking to my left to see whether Iain McIver is nodding. Can we get SPICe to put together a briefing on that?

Someone in SPICe will do that.

Thank you very much.

That was a ringing endorsement, if ever I heard one.

I note that that is the one area of give from the UK Government. Initially, it had said vehemently that no EU institutions could be used for a subset—for the euro zone plus, if you like. There seems to have been movement on that, although the UK Government has still expressed reservations about what the arrangements would mean. I suspect that greater movement will take place on that and that the question of the use of the institutions might yet be resolved.

Are we content to send the “Brussels Bulletin” to committees?

Members indicated agreement.