Lord Barnett
To ask Her Majesty’s Government whether HM Treasury is developing contingency plans for use in the event of a Eurozone collapse.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, as my right honourable friend the Chancellor of the Exchequer made clear in the Autumn Statement, the Government, including of course the Treasury, are undertaking extensive contingency planning to deal with all potential outcomes of the euro crisis.
Lord Barnett
Thanks for that very informative reply. I hope that there will never be a need to use the contingency reserve, because, as the Chancellor has said, it would be devastating for the UK economy if there was a collapse in the eurozone. We already have a near recession—if not an actual one—forecast without such a collapse. I gather that the Government are more amenable to the new draft treaty that has been promoted for the next summit. In those circumstances, and given the risk of jeopardising the slightest chance of preventing that collapse, would he not agree that it would be very foolish to veto that summit as well?
Lord Sassoon
My Lords, first of all I welcome the compliment paid to my Answer by the noble Lord, Lord Barnett. He asked me a yes or no Question. I gave him a very full Answer and some extra things he did not ask about, so I am glad that he appreciates that. I am not going to speculate on our negotiating position because this is all very fast moving. All I can reiterate is that we are working very hard with our European partners to see a resolution of all aspects of the crisis. They have invited us to be at the table to discuss the arrangements that the eurozone countries are making among themselves and we are active and positive participants when we are invited to be there, as we are at those discussions.
Lord Higgins
My Lords, does the Minister agree that it is very much easier, technically, for a country to join the single currency than to leave it? Does he accept that the contingency plans which he mentioned—and which are welcome—need to be designed to ensure that, for anyone leaving, the process is completed as soon as possible? It is not just a question of having the notes and coins available but of having an extensive programme, including provision for exchange controls. I welcome my noble friend’s reply but stress that this is a very complex question.
Lord Sassoon
My noble friend makes some interesting and relevant points. I shall not speculate on what precise aspects the Government are looking at in their exercises but, as he points out, none of this, under a range of scenarios, would be at all simple.
Lord Campbell-Savours
Has the Treasury carried out internally an inquiry into the level of exposure of British banks to banks within the eurozone that might collapse?
Lord Sassoon
My Lords, of course the FSA, in the course of its normal work, continually examines the exposure of the financial sector to a whole range of issues, including to the eurozone. The Europe-wide stress tests which were done, and done again, and finally done on a much better basis, looked at that matter last year.
Lord Forsyth of Drumlean
Will my noble friend confirm that in these contingency plans there is no question of the Government providing money for eurozone states to bail them out while the underlying problem of lack of competitiveness within the euro remains unresolved and unaddressed?
Lord Sassoon
My Lords, of course I can confirm to my noble friend that we work extremely hard to make sure that the competitiveness of the EU and the eurozone is not lost in the discussions. It is encouraging—they are only early signs, but they are encouraging—that in the Merkel-Sarkozy discussions on 10 January there was specific reference to growth-enhancing policies for prioritising EU spend towards growth and competitiveness. We look forward to the letter which I think they are likely to write to President Van Rompuy ahead of the next Council meeting.
The Chancellor of the Duchy of Lancaster (Lord Strathclyde)
My Lords, there is plenty of time. Shall we hear from the noble Lord, Lord Grenfell, and then perhaps from the noble Lord, Lord Pearson?
Lord Grenfell
My Lords, given the unrest on the Conservative Benches in the other place, I was tempted to ask whether the Prime Minister had contingency plans for the full recovery and strengthening of the eurozone, but I have a more serious point to make. Does the Minister agree with me that it is extraordinary that the rating agencies disclaim all responsibility for the impact on borrowing costs of their downgradings when a Government like Italy’s are doing their best to solve their problems, and when an institution such as the European Financial Stability Facility—which was downgraded yesterday by Standard & Poor’s—is trying to maintain its lending capacity in advance of the creation of the new ESM, which will take some time? Do these unaccountable agencies just not care whether the impact of what they do is likely to hamper and jeopardise the eurozone recovery?
Lord Sassoon
My Lords, the credit rating agencies have a useful and important part to play in the good working of the financial markets. Your Lordships produced a report in committee on aspects of the regulation of the credit rating agencies on which we had a good debate before Christmas. There are issues about the performance of the credit rating agencies in respect of the financial crisis, but their record generally on sovereign ratings has been perfectly acceptable in most people’s judgment. However, I am not going to comment on their individual judgments in the past couple of weeks.
Lord Pearson of Rannoch
My Lords, is it not now clear that there are really only two ways forward—either full fiscal union, which does not look as though it will be accepted by the peoples of Europe, or a return to national currencies? On the latter alternative, have the Government seen the research from Bank of America Merrill Lynch which suggests that an orderly return to national currencies need not be nearly as traumatic as the political class would have us believe?
Lord Sassoon
My Lords, there is a whole range of views about the effect of the eurozone breaking down in any way. All I can say is that 40 per cent of our trade goes to Europe, and we want to see a strengthened and healthy eurozone. That is fundamentally in the interests of the UK. A crisis in the eurozone presents the most imminent threat to growth in this country.
Lord Strathclyde
My Lords, there is plenty of time to hear the noble Lord, Lord Peston. Can we hear first from my noble friend Lord Newby, and then from the noble Lord, Lord Peston?
Lord Newby
My Lords, does the Minister agree that if there is a collapse in the eurozone, it is highly likely that the IMF will be asked to play a larger role that it has done up to now? What is the Government’s thinking about making further resources available to the IMF in those circumstances?
Lord Sassoon
I am happy to try to clarify the Government’s position. It is very clear that the Government see the IMF’s role as supporting individual countries and not currencies. That has always been its role. If the IMF puts forward a case, as it may well do, for an increase in its resources, and if there is a strong case, the UK will support the IMF in increasing resources as required, as it has always done in the past.
Lord Peston
My Lords, using the immortal words of the noble Lord, Lord Henley, will the Minister give me a lesson in economics and explain why the Government still do not forthrightly support the maintenance of the euro? What possible benefit is there to us in the Government seeming to drag their heels when dealing with this matter?
Lord Sassoon
My Lords, as I have repeatedly made clear this afternoon and on other occasions, the UK Government want to see a strong and dynamic eurozone and European economy. But it is for the eurozone countries to take the lead in supporting the euro as a currency.
Lord Lawson of Blaby
My Lords, there is only one thing as worrying as the collapse of the eurozone, and that is the continuation of the eurozone. It has been demonstrated to be fundamentally flawed and is the cause of all these problems. Is the noble Lord, Lord Campbell-Savours, not right that at the heart of the thing that we need to address is the risk of a banking meltdown? Will the Minister give an undertaking that should it prove necessary for the United Kingdom Government to rescue any British banks, they will do so on much tougher terms than the ludicrously soft terms on which the previous Administration went in to save banks?
Lord Sassoon
My Lords, we have a lot to learn about the softness with which the previous Administration went about a lot of things. One of the key lessons for this crisis is that we must stick to a deficit reduction programme that is firm and fair, and keep this country isolated from the worst of the problems that are all around us.