EU: Recent Developments

Baroness Wheatcroft Excerpts

Thursday 16th February 2012 Lords Chamber

[Baroness Wheatcroft]

My Lords, the European Union could and should be a thriving single market. That was the proclaimed aim when the grand project was launched, whatever ulterior motives some may have had. It remains a sensible ambition, although yet to be achieved. It is slow progress. It was only on Tuesday that the European Parliament passed a new regulation on the single European payments area, which should, eventually, mean that payments can be made from accounts within the EU much more cheaply and efficiently. That will benefit people and businesses and is exactly what a single market should be about. But there is too much that the EU does which seems to militate against increased productivity, whether it be restricting clinical trials, as we have heard today, or in loading new regulations on to businesses, such as prospective new rules on data protection.

I am not suggesting undoing all the measures to which the noble Lord, Lord Monks, referred, but we must not restrict the competitiveness of our business. Brussels ventures into too many areas where its presence is unnecessary. I was startled to see that, for the fifth year running, it is staging a “gender drawing competition” for eight to 11 year-olds. Too much, too soon, I thought. It turns out to be not anatomical but sociological, seeking drawings that show gender equality in action. We do not need Brussels to be doing that sort of thing.

No matter how far Brussels tries to reach its tentacles, Europe is not a single political entity, and what we are currently witnessing, as the Greek débâcle unfolds, is evidence that that is unlikely ever to be the case. There are, of course, occasions when Europe can talk as one, where we have the same aims. Burma is an obvious example. Fighting Somali pirates is another. However, we will not always be one political entity. There are many reluctant to acknowledge that. I was struck by the fact that, last week, the noble Baroness, Lady Ashton, who otherwise glories in the title of EU High Representative for Foreign Affairs and Security Policy, was in Brazil, explaining how the EU had started as a single market but that it had soon become clear that its strength will be in what she termed the “political coming together”. It was this strength, she explained, that had enabled the EU to come to the aid of Tunisia with a package of €4 billion to be distributed over three years.

I applaud someone who chooses to look on the bright side, but a speech that can rejoice in the coming together of the EU and avoid any mention of a little local difficulty in Greece is perhaps taking optimism a little too far. The EU High Representative, however, has to try to think of the EU as a political entity, as she represents its foreign service. She has 136 diplomatic missions around the world, and she overspent a budget of £380 million last year. Quite what this has achieved so far is unclear but, when given money, Brussels has a habit of overspending it. It can always find a way. The fact is that the EU is not a political union and nor is the eurozone. That a single currency would falter if it were not accompanied by political and fiscal union was always likely, if not inevitable. We are now seeing that happen, exacerbated by the financial crisis that has erupted, but not caused by it.

It was clear two years ago that Greece could not continue with the level of debt that it had. Its problems were so bad that simply finding ways of lending it more money, no matter what strings were attached, would not be the answer. If a man is drowning in debt, you do not save him by throwing yet more debt at him. For two years the eurozone has struggled to find a way of dealing with Greece’s problems. Despite the increasingly acrimonious rhetoric and posturing of the past few days, it may well be that more bail-out cash will be shovelled its way, but that will only further delay the inevitable. One has only to look at the scale of the pain now being suffered in Greece, and the anger of its people, to know that further austerity measures are going to be desperately difficult, if not impossible, to impose and that even if a Government made an attempt to do so, the end result would not be enough to enable Greece to cope with its debts. It has to default. It should never have been in the euro—its entry was a political fudge built on a concoction of lies.

The good news is that Greece is only a small country. In the first six weeks of this year, according to calculations from Goldman Sachs, China created half the GDP that Greece did in the whole of last year. However, its predicament is taking on more significance because of the eurozone’s chronic delays in sorting it out. It is being allowed to increase doubts over the functioning of the entire euro area. That is why it is imperative that the posturing should stop and that action should be taken.

Greece, under the weight of austerity, is now shrinking, although those in need of a dose of Ashton optimism might look at a website entitled Invest in Greece, produced by the Greek Government. It is still predicting a rise in GDP this year and suggests that Germans are looking enthusiastically at investing in the Greek tourist industry. I am not sure that coach-loads of Germans arriving in Greece are going to get a great reception at the moment.

It is not only Greece that has problems, as we know. Only today it has been reported that Spain is back in recession for the first time in two years. And we should not imagine that the banking crisis has finally been put to bed, for over the past couple of years what has become apparent is a dramatic rise in eurozone countries taking on their own country’s debt. Holdings of sovereign debt since 2008 have moved dramatically. Spanish banks, for instance, are now holding 65 per cent more Spanish government debt than they were two years ago, and Italian banks have 50 per cent more of their own debt than two years ago. For Greece the figure is even higher, at 89 per cent, and significantly for Portugal the figure is 400 per cent. That may indicate that Greece is not the last country to have to exit the euro. Those holdings indicate that, as countries get deeper into trouble, the effects on their banking system will be dramatic.

My noble friend Lord Hamilton has highlighted the problems that the eurozone has had in getting to grips with what goes beyond the Greek borders. It is true. We have seen two years of vacillation. The noble Lord, Lord Mandelson, praised the role of the Chancellor of the Exchequer and the help that he has tried to give at this difficult stage for the euro. It is the role of supportive friend, not guarantor, and it is for the eurozone countries to decide whether they feel comfortable with shouldering the weight of the weaker European economies. Our role is that of a fully fledged member of the single market, anxious to play a pivotal role in making that market work at its optimum. That means looking for ways to limit bureaucracy and stimulate growth.