Economic and Monetary Union (EUC Report)

Lord Dykes Excerpts

Wednesday 9th November 2016 Grand Committee

[Lord Dykes (CB)]

My Lords, it is a pleasure to speak in the gap. I congratulate the chairman of the sub-committee on her great work in the task of producing this report. I try to read all European reports, which is a daunting task because there is so many of them, but this report—I am not saying this deliberately to embarrass anyone—is one of the best I have read. It is very thorough indeed, and I agree with most of the points and recommendations made in it.

I shall be brief in enunciating a couple of thoughts which give more of an optimistic background to the growth of the euro. I acknowledge that this is referred to in the report and in some of the speeches and comments that have been made. The development of the euro has been an astonishing achievement in international terms—the noble Earl, Lord Caithness, referred to this in his remarks. It was never expected that it would be so rapid in the days when it first started. I looked up the figures. The most important statistic for measuring these matters around the world is the international daily banking payment transactions figures. The figures I looked at were from about four weeks ago and showed that the euro was responsible for about one-third of all world transactions in reserve currencies and currencies in general. The United States dollar was responsible for 40% of them. So with 33% and 40%, the euro is getting closer to the US dollar.

However, we can consider the aggregate debt figures. Donald Trump kept referring to the nightmare figure for US federal debt—not the debts of the cities or states but just the US federal debt—quoting, quite rightly, a figure of $19 trillion. The aggregate debts of all the member states of the European Union—you need not include the European budget, by the way, because it is a virtuous budget with no debt and its receipts more or less equal its payments—is of the order of $13 trillion. With 300 million people, the US has a debt of $19 trillion, while the debt of the EU, with 500 million people, is $13 trillion. Furthermore, if you look at the way in which growth is taking place and where, the enormous amount of corporate issues in the eurozone has been an astonishing phenomenon, which was not unexpected by people in the City originally. In contrast, our own currency, the pound sterling, has recently seen its eighth devaluation since the War. There were three devaluations by government action in the post-war period and five by market action, including a significant devaluation when the Brexit result was announced after the referendum.

The choice, therefore, for monetary instrument executives in government and central banks in any country is to determine the better choice between the high currency, strong currency, disciplined currency system that the deutschmark has always represented, which encourages the growth of assets and net domestic capital formation and is long term, lasts longer and is stronger and bigger in percentage terms, or the easy devaluation route, which has been the UK habit from time to time whenever there has been somewhat of a crisis. My answer is that if you have in the eurozone the deutschmark but at a low level under the euro than if it was the deutschmark on its own, that is the virtuous choice between the two. I was glad that the noble Lord, Lord Butler, sounded an optimistic note when he allowed that the eurozone might take a bit longer to develop than originally intended but that it is certainly on the way. The message for us in Britain is that we must overcome the psychological trauma and the fears and anxieties that we experienced in 1992 when we were driven out of the exchange rate mechanism in very humiliating circumstances and consider returning to the euro philosophy in the future.

--- Later in debate ---

[Baroness Falkner of Margravine]

I noted the comment of the noble Lord, Lord Giddens, on the missing sixth president, in terms of the number of presidents. It is also interesting that the missing sixth president is a woman, on a day that women are doing rather badly in political life generally.

I also want to pick up the point made so eloquently by the noble Lord, Lord Dykes, on the speed, in a historical perspective, with which the 19 countries have come together to embark on this endeavour. There was a tone of pessimism beyond my own pessimism, which was echoed by the noble Lord, Lord Butler, and several other noble Lords. I have no electronic gadget that is charged or that seems to work in this room, so I was trying to work out from memory when the United States became a single currency zone. If I remember correctly, it was in the early years of only the last century.

[Lord Dykes]

In 1910.

[Baroness Falkner of Margravine]

I am told it was in 1910. That is when I thought it was, but I was afraid to say so in case I was wrong. Not having a reliable electronic gadget to tell me whether I was right or wrong made me feel quite insecure, so I am very glad the noble Lord, Lord Dykes, confirmed that. If you look at the span of time from when the United States became a federation to this stage, what is happening in Europe is truly remarkable. With all of us expressing doubts, as the noble Lord, Lord Butler, did, about whether this is a road map with a road that leads over a cliff, my feeling is that it will not lead over a cliff, but a core group will move at a different, faster, speed, to the rest of the 19 countries.

I turn now to the comments by the noble Lord, Lord Tunnicliffe, who seems to be most pessimistic about the whole thing. When he asked whether the Government thought that the eurozone was liable to survive another banking crisis, he must have had in mind Deutsche Bank and the parlous situation of Monte dei Paschi di Siena. I remind him that it is not the eurozone and its regulatory structures alone that are responsible for stability in our banking sector now, because the Basel rules, which were incorporated into the eurozone, are, of course, the backdrop. We have had stress tests, and we have backstops now. Obviously these are extremely large and indebted banks, but, on the whole, the tools we now have to cope with financial crises within the eurozone are very different and much stronger than they were some years ago.

I conclude by reminding the committee of one thing that I did not touch on: the title of our report. It was deliberately chosen to echo the comments of Mario Draghi, president of the European Central Bank, in the context of the Greek financial crisis and the lack of confidence of the financial markets in the eurozone. He said that it would do whatever it takes. The United Kingdom should will it to do whatever it takes in its interest and ours. We would all be better served if the eurozone survived and thrived because the consequences of it not doing so would not be good for us either.