Eurozone Crisis

Lord De Mauley Excerpts

Thursday 1st December 2011 Grand Committee

[Lord Lawson of Blaby]

My Lords, I join others in commending my noble friend Lord Lamont for having, by a somewhat circuitous route, initiated this debate and for his outstanding opening speech. I echo him too—he was perhaps slightly understated—as in my judgment it is an absolute disgrace that this debate is for only four hours and has been shunted off to the Moses Room rather than being on the Floor of the House. Much as I love the government Chief Whip—and it is not just her—on this occasion the House has been badly let down by the usual channels.

We have so little time that, like my noble friend Lord Lamont, I will confine myself entirely to the eurozone disaster. It was predictable and predicted. I was not alone in predicting it, but I think that I was the first Minister to explain the fatal flaw at the heart of this misconceived venture. I shall quote a speech that I made as Chancellor of the Exchequer at Chatham House on 25 January 1989, before European monetary union had come into being. It was even before the Delors report, the blueprint for monetary union and the eurozone, had been published, but by that time we knew what it was going to say. I said:

“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. These are not technical issues.

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 more than 20 years ago, and it was as true then as it is today. It was not meant to be a case for Britain not joining; in my opinion, there was no way Britain would join anyway. I was trying to persuade my European friends and colleagues that they would be ill advised to go down this calamitous route.

You might ask, “Why did it happen?”. It happened partly because there are always ignorant worshippers in the church of Europe who believe that anything that is “more Europe” must ipso facto be a good thing—you do not have to work out the details, because if it is “more Europe” it is good. Of course, the main promoters were much more sophisticated than that. They knew that it could not work without full political union, and it was full political union that they wanted. This was never an economic venture; it was entirely political. It was a means to achieve a full blooded political union—a united states of Europe.

The motives of those who wished for that may have been commendable or noble, but they committed two unforgivable errors—and I could use a worse word than error. First, they showed complete contempt for democracy. That has always been one of the least attractive aspects of the European movement during my time. It was quite clear that you could not have a political union unless you could convince the people of these democracies that they should have it. You had to carry the people with you. But the people do not want it; and it is not just the British who do not want it. As some noble Lords know, my main home nowadays is in France. I can assure noble Lords that French people do not want it either. None of the peoples of Europe, save perhaps those of Luxembourg, want it. But they have been shown a complete contempt for democracy.

The other disgrace, which made this venture the most irresponsible gamble that any senior group of politicians has ever taken in the post-war era, is that it was quite clear that if the gamble did not come off, there would be a disaster, and that is what we have now. In fact, we have a doomsday machine. It is quite extraordinary that we are not asking how to dismantle this doomsday machine, but how to keep it going. “How do we go from bad to worse? Let us keep the doomsday machine going”. It is nonsense. When you have a doomsday machine, you try to dismantle it, but they say, “No. How can we perpetuate it?”.

So where do we go from here? This has both an economic and a political dimension. As I said, the economic dimension has to be the dissolution of the eurozone and a return to national currencies. It has to be done in as orderly a manner as it can. As my noble friend Lord Lamont said, there have been a number of cases in history where monetary unions have been dissolved. Incidentally, history also shows that, as with German monetary union in the 19th century, you have to have political union first, which Bismarck in Prussia imposed, before you can have monetary union. They had to solve the question of the political union first, and they could have monetary union only after achieving political union. I admit that it is not easy, but it is clear that it is the least bad solution. To continue with the doomsday machine would be very much the worst step—not just for us, but for the whole of Europe.

The other aspect of the economic way out is how we deal with a potential—and burgeoning—banking crisis. The consequences of impaired sovereign debt in the eurozone mean that we have a new banking crisis superimposed on banks that are already enfeebled by the banking crisis of 2008 to 2010. This is where the economic threat is coming from. There is no economic threat posed by the break-up of the eurozone because that would be a good thing. The economic threat—it is serious and I do not wish to belittle it—comes from the problem of a serious banking meltdown. But there are ways in which this can be addressed. I believe that the IMF has a key role to play, and as members of the IMF, obviously we will be contributors. The heart of the problem is impaired sovereign debt on banks’ books and so on. I have some experience of this because the first thing I had to deal with when I became Chancellor of the Exchequer in 1983, along with my opposite numbers in what was then the G5—it had not grown to seven in those days—was the Latin American sovereign debt crisis. It was not quite as big as this one, but at the time people felt that there was a real threat to the world economy. It was handled pretty well by the IMF with the support of the finance Ministers and Governments of the G5 countries. I do not have time to go into it now, but it can be done.

Countries are then able to buy time, and that means that to some extents banks are able to do so as well. Banks need time to strengthen their balance sheets. Some banks may still need official assistance as well—assistance from the taxpayer, as it were—in order to prevent a serious banking crisis, but that is the responsibility of national Governments and Treasuries. It is absurd to think that there can or should be a European solution to that. The German Government will have to support German banks if they need support, the French Government will have to support French banks if they need support and so on, just as the noble Lord, Lord Myners—whom I see in his place—tried to support them. Perhaps he was too generous to them; the terms were not very good, and he did not strike a very good bargain. Nevertheless, he was absolutely right that there needed to be some taxpayer support for British banks in difficulty at that time. This is the responsibility of the national Governments around Europe. The idea that there should be eurozone bonds, as if the eurozone were a Government, is ridiculous. The idea that you put the European Central Bank, which is probably already technically insolvent, into an even worse state is absurd.

That is the economic way through. Politically, later on—

[Lord De Mauley]

My Lords, I do apologise to my noble friend. I respectfully draw his attention, and that of other noble Lords, to the fact that this is a time-limited debate. There is a confusion of clocks around the Chamber, but the one to keep an eye on is the one in front of each of us.

[Lord Lawson of Blaby]

I am most grateful to my noble friend for reminding me of that. It underlines what an outrage it is that we are being cribbed and confined in this way.

--- Later in debate ---

[Lord Myners]

My Lords, before my noble friend speaks, I ask the Whip representing the Government whether we will all now be allowed, if required, 13 minutes. The Whip made very little effort to restrict the noble Lord, Lord Lawson. I personally would have liked the noble Lord to have had more time to speak because he has such rich and informed experience. The Whip allowed that to run for 13 minutes, and I hope that he will extend the same courtesy to people from the other side of the House if they so wish.

[Lord De Mauley]

My Lords, the noble Lord knows perfectly well that we are a self-regulating House. We have all agreed to time-limited debates.