International Development (Official Development Assistance Target) Bill

Debate between Lord Davies of Stamford and Lord Lawson of Blaby

Friday 27th February 2015 Lords Chamber

[Lord Lawson of Blaby (Con)]

My Lords, I give my full support to the amendment that the noble Lord, Lord Butler, has just moved. He pointed to the names of noble Lords who have put their names to this amendment, all of them former Permanent Secretaries to the Treasury, Cabinet Secretaries or, in some cases, both. In all my 23 years as a Member of your Lordships’ House, I cannot remember this ever occurring before, and it may well be that it is unprecedented. There is a reason for that.

I pay tribute personally to the noble Lord, Lord Butler. I have known him for many years. When I first became Chancellor, he was Permanent Secretary in charge of public expenditure at the Treasury, a duty that he fulfilled impeccably and has done over the years. We are very lucky in our senior Civil Service. He has been an outstanding public servant in a number of ways over a large number of years, and we ignore what he says at our peril.

The amendment is fundamentally about good government. I do not know whether this is still the case, but in my day the Treasury used to be known as “the central department”. It was called that because it had a responsibility that went beyond the question of the management of the economy, in so far as one is capable of doing so; it also had a responsibility for good government. We in this House also have an overarching and overriding responsibility for good government. However well intentioned, the Bill, for the reasons outlined by the noble Lord, Lord Butler, is the antithesis of good government. It is gesture politics. Good government really matters, and the amendment from the noble Lord, Lord Butler, goes to the heart of that issue. I warmly support it.

[Lord Davies of Stamford (Lab)]

My Lords, the noble Lord, Lord Butler, in his normal way, spoke extremely powerfully. His arguments are extremely strong, his logic is irrefutable and his experience is something that no one would wish to challenge.

The trouble is that I think he has missed the essential point of the Bill, which is that it is a quite exceptional measure designed to send an exceptional message to the world. First, it says to the developing world, the poor countries containing the 4 billion or 5 billion people in this world who live on less than $1,000 a year per capita income, that we care about inequality and are making a fundamental qualitative change in order to demonstrate the authenticity, the reality, of that commitment and a desire to make a new move in that direction. The second reason is of course to send an equally unmistakable signal to other developed countries and to set an example that we hope they may follow.

The trouble with the amendment from the noble Lord, Lord Butler, for all the quite sincere compliments that I have just paid it, is that it undermines completely that sense of authenticity. If it is clear that at any time the Treasury can decide in a given year that our obligation to spend 0.7% of GDP on international development no longer applies, then the whole commitment that we are trying to make will simply be emptied of its content. The message will not have any strength at all for either the developing world or the rest of the developed world, and that is the basis on which, very sadly, I feel I have to oppose the amendment.

European Union (Approval of Treaty Amendment Decision) Bill [HL]

Debate between Lord Davies of Stamford and Lord Lawson of Blaby

Wednesday 23rd May 2012 Lords Chamber

[Lord Lawson of Blaby]

If 90% of people say that they agree with some particular European convention, that is probably a lie. I doubt whether 90% of people know about any European convention.

To come back to the Bill that we are debating, a few days ago an item appeared on the Foreign Office website which read:

“Foreign Office Minister introduces EU Treaty Amendment Bill to the House of Lords … Foreign Office Minister Lord Howell said … ‘A stable and healthy eurozone is important for the UK’s long-term growth and prosperity. This treaty change is firmly in the UK’s national interest’”.

That is the basis for the Bill before us. I have the greatest affection for my noble friend Lord Howell. Indeed, I can hardly blame him for saying that, because it is government policy. But it is, of course, complete nonsense. It is not a stable and healthy eurozone that is important for the UK’s long-term growth and prosperity; it is a stable and healthy European economy which is important for the UK’s long-term growth and prosperity. So long as the eurozone staggers on, we will not have a healthy European economy. That is the problem that we face.

Greece has been mentioned. It has a number of special economic difficulties and also a special political difficulty. Greece is, and always has been, a “phavlocracy”. I owe this term, which is little used, to when I was editor of the Spectator, 45 years ago. I recruited an excellent Athens correspondent, because the colonels had just come in, and he explained that “phavlocracy”—a word the Greeks use—meant “government by corruption”. The high economic cost of that is an additional problem but we are not debating a Greek problem. This is a fundamental problem of the eurozone project. It is not the tired old argument of growth versus austerity, as if somehow you can say, “Let’s have some growth, what a good idea”. It is the particular problem of the eurozone that we need to address.

The European Monetary Union was fundamentally flawed right from the start. It was predictable and indeed it was predicted. I think I was the first Minister to point this out in a speech at Chatham House in January 1989. I analysed the eurozone project and I concluded in these terms. It is a long quotation but it is important to put on record what I said at the time, well before the eurozone came into being. It was a few days before publication of the Delors report on which European monetary union was based, but we all knew what would be in it. As Chancellor of the Exchequer at that time, I concluded in these words:

“Nor would individual countries be able to retain responsibility for fiscal policy. With a single European monetary policy there would need to be central control over the size of budget deficits and, particularly, over their financing. New European institutions would be required, to determine overall Community fiscal policy and agree the distribution of deficits between individual Member States.

The setting up of a European Central Bank or a new European institution to determine Community fiscal policies go to the very heart of nationhood. What organisation would really be the government? It is clear that Economic and Monetary Union implies nothing less than European Government—albeit a federal one—and political union: the United States of Europe. That is simply not on the agenda now, nor will it be for the foreseeable future”.

That is what I said as Chancellor of the Exchequer in January 1989. I elaborated on a number of further occasions, both in speeches and in articles, during the interim period until 1999 when it came into being. Then I gave up. I was seeking to persuade our European friends and partners not to make the huge mistake of going down this hugely damaging route. Once they had done it, I had failed and I gave up.

I was not the only one. My friend Hans Tietmeyer, when he was president of the Bundesbank in 1996, in the more measured terms that central bank governors are inclined to speak, said:

“Monetary union means a restriction on national sovereignty, on national manoeuvring room and the ability to go it alone. Participants lose the instrument of exchange rate adjustment … In a monetary union, countries have to tackle and solve their economic problems and challenges in a similar way and with similar speed. If the countries decide fundamentally different answers, then great problems will arise”.

He could say that again.

So why did this happen when everybody who was informed knew that this was fundamentally flawed? It happened because this was not economic at all; it was entirely political. There were of course some innocent worshippers at the church of Europe who believed that anything that was more Europe must ipso facto be a good thing. But most of the promoters were more sophisticated. Their objective, and they were clear about it, was full-blooded political union—a United States of Europe. That was the view of Jacques Delors and most of those who supported him. They thought that since monetary union and political union have to go together, if you want political union then you have the monetary union and it will inevitably lead to the political union which is the objective. That is a fundamental misreading of history; it is the wrong way around.

The example of Germany in the 19th century is interesting. German unification came in three stages. First, there was the zollverein, the customs union. Then Bismarck and Prussia forged a political union from blood and iron. It was only after they had political union that they had monetary union. That was the sequence. Doing it the other way around simply does not work.

One reason why you must have political union is that, as we all know, there must be transfers from the German taxpayers to the poor Greeks or whoever. However, you cannot make that work—nor does it have credibility—if it is on a sporadic and discretionary basis. You must have a single system of taxation, as there is in any currency union, such as the United Kingdom, which takes more money from the wealthier sections of the economy; and a single system of spending so that there is more spending on, say, social security in the poorer parts of the economy. The transfers become automatic and there is no discretion.

You must also have control of deficits. This simply means that you must have a single Finance Minister at the head of a single finance ministry in a single Government. That is the only way that it can work. Even then, it would, in my judgment, be economically harmful to the European Union. To use the economists’ jargon, which the noble Lord, Lord Giddens, enjoys so much, it would be suboptimal.

There is a great literature about what is known as an optimum currency area. No one quite knows what an optimum currency area is. We all know that you do not get individual cities with their own currency but, equally, you do not have a world currency. That is too big and the first is too small. Where is it right? I think all economists would agree, as would the noble Lord, Lord Giddens—even though he is not an economist, he follows these things—that an area as big as the European Union, with its great size and diversity, is not an optimum currency area. In particular, to help the transfers and so on to work you need wage flexibility, which the United States has but Europe does not. Indeed, it is anathema to the European social model, which is opposed to wage flexibility.

Above all, you need labour mobility. That is what happens in the United States. If one area is not doing too well, people move to another area. However, what do you have in Europe? For cultural and linguistic reasons, when there is 25% unemployment in Spain—indeed, 50% youth unemployment—but little more than 5% in Germany, the Spanish do not move to Germany. They riot in Madrid and call on their Government to do something to help them.

[Lord Davies of Stamford]

Is the noble Lord aware of Mundell, the author of the seminal article that defined the concept of the optimum currency area? Indeed, he invented it. That article produced the key criteria that define an optimum currency area and an equation that became part of standard theory and won a Nobel prize for Mundell. Is the noble Lord aware that Mundell is on the record as saying that he regarded the eurozone as meeting the criteria for an optimum currency area?

[Lord Lawson of Blaby]

Yes, I am aware of that. I am also aware that he subsequently changed his mind on that point.

Those who promoted European monetary union were guilty of great arrogance and unbelievable irresponsibility. They were arrogant because the only way to have political union was with the consent of the peoples of Europe. The people of this country, the people of France, where I live nowadays, and the people of most, if not all, of the countries of Europe—Luxembourg may be an exception—do not wish to give up national self-government. They do not want to be part of a full-blown European political union. It is a sad thing but I am afraid that for all its, no doubt, high-minded motives, the European movement has been marked by the most appalling contempt for democracy throughout the years that I can remember. The irresponsibility is that political leaders must have known that if this gamble did not come off and they were not able to achieve the political union, the disaster which we see all around us was bound to ensue. That seems to me to be the most irresponsible thing that political leaders could ever have done.

What now? In my judgment, the least bad course—I say “least bad” rather than best because I accept that it is not good—is the orderly dissolution of the eurozone, which will begin with the departure of Greece in only a matter of time, and it will not be a long time. This dissolution is already happening before our eyes, even if the politicians do not accept it. Holders of euro deposits in Greek banks are taking them out at a rate of knots and they will do so increasingly. After that, I am afraid that the same thing will happen as regards euro deposits in the banks of other countries considered to be likely candidates for withdrawal—whether it be the Spanish or Portuguese banks, or wherever.

I agree that the dissolution of the eurozone will be far from painless. There will be a whole lot more sovereign defaults. We have already had getting on for an 80% write down of Greek government debt. That will be bigger. There will be other sovereign defaults. There will be banks in difficulty.