On 25 January, Bill Cash MP made the following speech in the House of Commons on the Committee stage of the European Union Bill, urging MPs to vote for an amendment so that a parliamentary Act and a referendum would be necessary in the case that a decision is made to extend the use of the European Financial Stability Mechanism to Member States, particularly with concerns over Portugal and Spain, beyond the crisis of the Republic of Ireland.

Part of my argument will be that that financial mechanism is unlawful. It was entered into by a former Chancellor of the Exchequer and endorsed by the coalition Government in circumstances that I shall describe. It is also still subject to scrutiny by the European Scrutiny Committee.

A s the hon. Gentleman knows, I tabled amendment 8. He has described the apparent tremendous advantages of the eurozone to us, and indeed the Government sometimes say much the same. The problem is that as a result of the failures of European economic governance and the failure to repatriate the regulations that are imposed, there is no growth in the EU as a whole. We are in the process of being enmeshed in an imploding European Union. So I do not entirely agree with the hon. Gentleman, although the reasons for my amendment are not directly connected with that.

I shall now discuss my amendment 8, on which I need to set out a bit of the history attached to it, because the House of Commons and the people of this country are confronted by a strange situation. I am being given the opportunity to set this out with clarity, because neither this Government, nor the previous Government have done what they should have done at the appropriate time. The British taxpayer has thereby been unnecessarily exposed, and we are talking about billions and billions of taxpayers’ money. I will explain why the amounts in question are as they are and how it happened. I ought also to add that this relates to the European financial stability mechanism, which was the mechanism that was partly used for the Irish bail-out. I need not go into the provisions of the Loans to Ireland Bill, because we dealt with that. This was a bilateral loan and that was my suggestion to the Chancellor when the matter first came up on the Floor of the House – perhaps it was a case of minds working alike. I can say only that I am glad that I at least got it on the record that we should opt for a bilateral loan, if anything, and if it were in our national interest. However, on 9 May, after the general election but before the coalition agreement was entered into, the previous Chancellor agreed at an extraordinary ECOFIN meeting that he would engage in this process. A discussion took place, and it is referred to in the explanatory memorandum supplied by the Government.

The subject will be debated by European Committee B on 1 February – the Financial Secretary to the Treasury has come into the Chamber and I suspect that he will be answering that debate.

The hon. Gentleman is absolutely right on that important point, and I was immediately coming to it – I have in my hand the explanatory memorandum, to which I referred before he intervened, precisely for that purpose. It stands in the name of the Economic Secretary to the Treasury. A scrutiny matter is still outstanding, so paragraph 26 comes under the heading of “Other observations” and states: “The Government regrets that the Scrutiny Committees” – those of the Commons and the Lords – “did not have time to consider this document before it was agreed at Council.”

I can tell the House that that happened because we were in a caretaker period and the European Scrutiny Committee, as such, was not sitting in that interregnum. The memorandum continues:

It should be noted that whilst agreement on behalf of the UK was given by the previous administration, cross-party consensus had been gained.”

That is why I made the point that the responsibility lies with both this Government and the previous one.

People keep saying that, but let us examine the actual operation of the European financial stability mechanism. The final decision is taken under the regulations concerned – this is what happened in the context of Ireland – only after the request has been made by the member state. I do not know whether this is one of the reasons why the current Taoiseach – only for the time being, it appears – is in deep trouble, but that is possible. What I do know for certain is that the prescribed procedure laid down under the regulations made under article 122 of the treaty on the functioning of the European Union was infringed by the manner in which the International Monetary Fund, the European Central Bank and others moved into Dublin before a request had been made. As we can recall, the Irish Government were saying that they had not made a request and that they did not need the money. It is also true to say that Mr Socrates is saying much the same at the moment.

The hon. Gentleman and I have engaged in debates on the European question since we first met. I have the greatest respect for him and he has hit the nail right on the head here, because this problem does not just arise because of our exposure to what happens in Portugal and Spain in the future; it also arises from the lack of a sound legal base for the decision taken in the first place by the outgoing Chancellor and endorsed subsequently by the incoming Chancellor. We know that there was a consensus and that an agreement was reached – that answers the question put by the hon. Member for Ilford South. I would not be going about this if I did not believe that substantial matters of principle and of huge cost to the taxpayer are involved.

I was not necessarily here when an impression was being given one way or the other. What I do know is that I have an accurate record of what did take place. I also have with me an article from Monday 10 May containing what are clearly accurate descriptions of the position of the then Chancellor – I believe he was just still the Chancellor then, because the coalition agreement had not been entered into. I recall writing to the Prime Minister on that day, suggesting, among other things, that he should go for a minority Government. I also said that if he was determined to go down the route of a coalition, he should require the Liberal Democrats to abstain on any matters relating to Europe that came up. That possibly explains some of my concerns as matters have developed and more and more European decisions, roadblocks and other difficulties in respect of the decisions we took in our manifesto have emerged.

A bsolutely, and I shall elaborate on that very quickly. Article 122 concerns matters of emergency and natural disasters, and its use for the purposes of financial stability is clearly – as the European Scrutiny Committee has said – not based on a sound legal footing. That is the issue. I had made that point, but I am happy to repeat it. However, it goes further: because of the failure of the legal base, the whole deal is vitiated. That is the problem. The deal was done in an interregnum and by consensus between the two Chancellors, but it ends up being vitiated as a matter of law. That is very serious given that the whole deal is for €60 billion-£52 billion – but according to the right hon.Member for Edinburgh SouthWest (Mr Darling), the United Kingdom is exposed to a risk of £8 billion.

Furthermore, this is not just a bit of esoteric dancing on the head of a pin. The Select Committee on Political and Constitutional Reform has examined the matter and I happened to be watching its proceedings when there was a discussion involving Professor Hennessey and two other eminent professors, Professor Hazell and Professor McLean. My hon. Friend the hon.Member for Isle of Wight (Mr Turner) asked a perceptive question about the status of the arrangement in the context of the Cabinet manual, which, as we know, is now out in the open and being discussed by that Committee in relation to caretaker Governments. The conclusion was that it was within the province of the incoming Chancellor to enter into such a bilateral arrangement in that context, in which he made his decision based on the information he was given by the outgoing Chancellor.My right hon. Friend the Member for Wokingham (Mr Redwood) is right. The problem is that, if that was unlawful, there was no basis on which either of them should have come to that conclusion.

I am very happy for that matter to be looked into further. My right hon. Friend might well be right, but I have an article that quotes the outgoing Chancellor of the Exchequer on the BBC’s “Today” programme, saying:

“Overall it is a very good deal for all of us in Europe but also for the wider world. It is” – something for us “together”.

He also said:

Our exposure for the additional amount of money could be £8 billion”.

The article also states that he “confirmed he had spoken to Shadow Chancellor George Osborne and Lib Dem Treasury spokesman Vince Cable about…responsibility for it” and goes on to state: “All three had agreed ‘there was no way Britain was going to underwrite the euro’.

When he was pressed, he said:

“I am not going to disclose the conversations we had, because we had them on the basis that they were private and confidential.”

The article goes on:

A statement issued after the talks confirmed that the new fund placed the potential risk squarely with the eurozone.”

That worries me. I do not know where that came from, because it most emphatically is not the case, as we are not part of the eurozone.

I hope that the Select Committee on the Treasury will look to considering all that. We are talking about substantial sums of money, about an interregnum period and about a rather unusual situation. We might be talking about errors of judgment involving considerable exposure for the taxpayer. For all those reasons, it is very important that we get to the bottom of this. We do not need to turn it into a witch hunt – I do not believe in those sort of things – but as regards scrutiny and accountability, this is an important matter that needs to be resolved properly and efficiently.

Proper answers need to be given, the Treasury needs to put forward the arguments that it presented and it should disclose the papers. We know perfectly well that, in the kerfuffle of 9 May and the days leading up to it, the then Chancellor might understandably have had a lot on his mind. In the circumstances, all sorts of things could have gone wrong. That is the moment, as I see it, when important strategic decisions involving enormous amounts of money and affecting the taxpayer on what I would term an unlawful basis – a basis that certainly is not legally sound – need to be considered very carefully.

It might not surprise some hon. Members that I tabled amendment 8. In all such circumstances, other than the situation vis-à-vis the Republic of Ireland, attention should be drawn to these matters, but under no circumstances whatsoever should we give money to Portugal or Spain when there is a facility, agreed at around the same time, for €400 billion to be available for the eurozone. Now a new arrangement has emerged which will be made available permanently after March 2013. If Portugal and Spain are going to go under, however, they will definitely go under before March 2013.

T hat is a general proposition with which one might agree in many instances, but analysis of the use of article 122 in this case, if it is examined as carefully as it should be, would give rise to so many uncertainties that the Court would have grave difficulty in trying to justify its use. However, that is looking to the future.

We are here in this House and I am suggesting, as is obvious from my amendment, that the provisions that should apply to the balance, beyond the Republic of Ireland, before any decision is taken to provide such facilities to Portugal and/or Spain, and/or any other country for that matter, should fall within clause 6. Let me remind the Committee that clause 6 says:

AMinister of the Crown may not vote in favour of or otherwise support a decision to which this subsection applies” –

I have a special definition of “decision” for this purpose, in case the Minister wants to make a point about that later –

unless…the draft decision is approved by Act of Parliament, and…the referendum condition is met.

There are substantial questions, and if the British people knew about this they would demand a referendum at least. It might be that an Act of Parliament is required in most unusual circumstances to rectify this situation, but all that is without prejudice to my general concern about the manner in which this has happened, the unlawfulness of the deal in the first place and the extent to which various Chancellors entered into the agreement. I understand how it could have happened; let us be sensible and practical. It was in the middle of the setting up of a coalition and huge discussions were going on in which the Chancellor – indeed the two Chancellors – must have been totally saturated in discussion. I can see how this could be slipped through. The Chancellor flew over to ECOFIN and made a decision; I do not want to criticise him, but his eye might not have been as firmly on the ball as one might normally expect.

On Second Reading of the Loans to Ireland Bill, I asked the previous Chancellor, the right hon. Member for Edinburgh South West he following:

“Did the right hon. Gentleman take legal advice on whether, as I said at the time, the use of the financial stability mechanism was an unlawful deal? Article 122 of the treaty on the functioning of the European Union deals with natural disasters, energy supplies and so on, and it has absolutely nothing to do with financial mistakes or misjudgments. Really, the whole thing should never have gone through, and he should have repudiated it on those grounds.”

He replied: “Yes, but as I said earlier, because of QMV, the deal would have gone through anyway.”

I do not think that issue alters the question of legality, because if the legal base is wrong, the QMV falls. The previous Chancellor went on:

I also do not agree with the hon. Gentleman’s analysis or” –

this is interesting –

“that the legal position was that clear-cut.” – [ Official Report, 15 December 2010; Vol. 520, c. 955.]

I found that response interesting, because he knew there had been serious doubts about legality and he did not say that he took legal advice. Nor did he say whether any legal advice that was given – if any was given – assured him that what was decided was right. There is a powerful reason for this whole matter to be looked at properly. Our Committee has looked at it and we think that any other Committee that thinks it desirable to do the same should do so.

It is important to include this matter in the Bill by a vote today – both as a matter of principle and because it might otherwise look as though the Government seek somehow to cover it up. That would be disastrous for them, because this involves many billions of taxpayers’ money in a time of austerity and difficulty, so it has to be sorted out. The matter has yet to go before the European Committee that I have mentioned on 1 February. No doubt the Minister and his colleagues are hoping that the scrutiny issue will have gone by then, that there will probably be no vote in the Committee and that the scrutiny reserve will be taken off. They may think they will get off scot-free, but I am afraid that my intervention in this debate might throw a spanner in the works, because the Committee now has notice of the points I have made. I hope I have made them in a temperate way with regard to the difficulties and decisions of the Chancellors in question. I do not want to engage in a witch hunt or to be unnecessarily difficult. It is a matter of accountability and of scrutiny. It is a matter of the Government coming clean about the whole situation, and of making certain that we deal with it properly.

I believe that it is down to the Government to go to the European Court by way of the equivalent of what we call an action for a declaration. Sometimes in the courts, when a difficult legal problem arises, one does not wait for someone else to act. One goes to the court for the equivalent of an action for a declaration. The Government could start the process in our own courts and put the question whether what was done was within the vires of article 122 or not. I do not believe it is, but it is incumbent on the Government to do that. In the meantime, for reasons other than the question of legality, I believe the issue is of such importance that it ought to be subjected to the provisions of clause 6, and should therefore be made subject to both an Act of Parliament and a referendum in these special circumstances.

Would the hon. Gentleman be interested to know that the Library has given me some figures showing that our balance of payments deficit with Germany was £12 billion in 2009? Heaven alone knows what it is now. Between 1999 and 2009 there was a deficit of £5 billion between the other 26 EU member states and ourselves, but we have a surplus of £11 billion with the rest of the world. His point is extremely sound – the EU is just not working.