Global Economy

Lord Flight Excerpts

Thursday 11th August 2011 Lords Chamber

[Lord Flight]

My Lords, perhaps I may suggest to the Minister that what is really damaging confidence and what has knocked stock markets is, in fact, the euro crisis. It is the perception that the economies of southern Europe and Ireland cannot recover without substantial devaluation. It is a situation analogous to that of the UK back in 1992. Broadly speaking, markets, because they cannot go for the currency, go for the bond markets. It may or may not be correct that the only solution is pan-European bonds, but the second issue is, if there is to be a pan-eurozone, it will obviously require massive ongoing transfer payments by Germany. Markets do not believe that Germany will be willing to accept such liabilities. That is the big factor damaging confidence and growth. It is the potential further banking and government debt crisis that that represents; it is people understandably moving their deposits out of banks in southern Europe because they fear they may end up with a lira or a peseta. Money supply is falling dramatically, with a 10 per cent reduction in Italy in just the past few months. That is the crisis which is having the knock-on problems for this economy—much more, I suggest to the Minister, than for the US.

[Lord Lea of Crondall]

My Lords, perhaps I may make two comments and ask two questions. First, it has already been remarked on that the Faustian pact between China and the United States over the past 10 years has been an ultimate, if not the principal, reason for slow world growth. Secondly, although the Minister dismisses so perfunctorily what my noble friend Lord Eatwell said, I suggest that he reads Hansard tomorrow, because my noble friend made a very carefully considered analysis of the world and European situation. I suspect that in terms of economic analysis my noble friend would probably get a higher mark than the Minister on the current situation.

Six months ago, I and many of us were on record as saying that all this would lead to a double dip. It is a quite different scenario from the Thatcher period when there was a reasonably good international position. The prediction of the IFS and others was that if you are going to cut £200 million-worth of output through the crash, the deficit would actually rise from 3.5 per cent in 2008 to something like 11 per cent now. That was without adding to it through austerity measures. We are talking as if austerity measures apply to all circumstances.

My first question is: will the Minister, the noble Lord, Lord Sassoon, consider inviting Chancellor Merkel over here to give her a personal tour of Britain to show her how a modern economy can best succeed—an economy where manufacturing all around works at the rate of Siemens and BMW?