Loans to Ireland Bill

Lord Liddle Excerpts

Tuesday 21st December 2010 Lords Chamber

[Lord Tugendhat]

No, I do not agree with the noble Lord. He draws too clear a distinction between membership and non-membership. I do not want to get diverted, as others have, from the main theme of my speech, but I think that Britain is a substantial member of the European Union. Therefore, conversations do not take place in one room with Britain being excluded entirely. People need to know what Britain is thinking and there has to be a certain interchange.

There are people who thought that if we did not join the euro, we would somehow be excluded from a lot of discussions. There are certainly discussions in which we do not take part and it may be that Ministers are rather relieved sometimes that they do not have to. But Britain is too big an entity to be entirely excluded and only brought in at the end of the discussion when everything has been decided. If Britain is to play a role in a future crisis, people will want to know beforehand what our attitude is likely to be, how far we might be able to go and under what terms we might be able to participate.

That brings me back to my line of march. When perhaps future problems arise, we should look at each of them and take a decision on their merits—certainly recognising our considerable interests in the eurozone; certainly recognising the importance of our membership of the European Union; and certainly recognising our interests in the political stability of different countries. But we should look at these things on their merits, decide our position on each one as it comes along and ensure that the decisions we take are subject to parliamentary approval. We are much more likely to carry confidence in the country and have support from the electorate if we are seen to do it on the merits, rather than if we are seen to have signed up to a certain automaticity.

[Lord Liddle]

My Lords, I have a great deal of respect for what I have described as the pro-European pragmatism of the noble Lord, Lord Tugendhat. He has shown that over the years in many of his contributions to the European debate. But what is being ignored is the point that came out in the Bank of England report from which I quoted; that is, the interconnectedness of our banking systems. Although it may not be the case that British banks have a lot of sovereign debt in Greece, Portugal and Spain, they have a lot of relationships with French and German banks, which have those obligations. Therefore, we would be inextricably bound up if there was a crisis. We should be trying to take a lead in sorting this out, not waiting for the telephone call from Mrs Merkel.

[Lord Tugendhat]

Again I am grateful for the kind words of the noble Lord, but I do not think that the world works that way. Perhaps I might refer to his former distinguished leader, Gordon Brown. We were not of course part of the eurozone, but, as the noble Lord says, our financial centre is intimately bound up with the rest of Europe. It is a considerable interest of ours. It is a source of profit and a great many things.

When the crisis hit, and the Lehmann Brothers went down in the September, the fact that we were not part of the eurozone did not stop President Sarkozy calling Gordon Brown over to Paris or stop Gordon Brown playing a considerable role in the decisions which were taken. We are not going to have a situation in the European Union where a country as big as this, and as significant as this, is in one place and everyone else is huddled in another, and they do not talk until they have made up their mind. They need to know what we think, they need to know what terms we would come in on and they need to know whether we would be willing to help at one level or at another level.

Of course, I recognise our interconnectedness. Like the noble Lord, I have devoted a good deal of my life to trying to make the interconnectedness greater. But I do not think that if we are not members of the eurozone, we ought to sign up to something which carries with it the automaticity of the permanent mechanism.

I do not entirely expect the Minister to make a comment on my final point. What goes around comes around. I am delighted that the Chancellor of the Exchequer can claim that on this occasion we are not part of the problem, but that we are part of the solution. He is right. On this occasion, we are part of the solution.

All of us in this House have long memories. All of us know that there have been many times when the United Kingdom has needed support from its friends. All of us know that there have been moments when the United Kingdom has run into difficulty and has looked to others for help. It would be a brave man or woman who would assert that such a situation could never occur again. I am sure that under the stewardship of the Chancellor of the Exchequer and my noble friend Lord Sassoon, it will not occur under this regime. But who knows when it might and it certainly behoves us in dealing with others to do as thou wouldst be done by.

--- Later in debate ---

[Lord Sassoon]

My Lords, I was talking about where Members of the House stood on the Bill, which is where I ought to concentrate if the noble Lord will permit me.

I began to feel grateful to the noble Lord, Lord Davies of Oldham, when he started his response to the debate; I thought that he was going to relieve me of some of my responsibilities. However, his comments then turned in a different direction. He went into an analysis of the UK’s economic challenges—an essay that I do not quite share with him—and then he asked some questions. I shall attempt to respond to his questions and to those of other noble Lords.

The starting point, clearly, is that over the past two years Ireland has faced a series of extraordinarily difficult economic and financial challenges which have resulted in the country having debts of more than 90 per cent of its national income, high unemployment and low levels of growth—and the Irish economy, of course, remains on the brink.

The noble Lord, Lord McFall of Alcluith, reminded us of the centrality of the Irish banking situation to the Irish crisis and how the Irish banks became increasingly reliant on central bank funding. In his analysis, the noble Lord, Lord Pearson of Rannoch, referred to trading but made no mention of the interconnectedness of our two banking systems, which is central to the Irish problem and to why it is so important to the UK that we should contribute to finding a solution.

In contrast to Britain’s situation, Ireland’s credit rating remains under threat and its economy continues to struggle. The package we are discussing today is designed to contribute towards Ireland’s solution to its problem. It starts by contributing to the recapitalisation of Ireland’s banks; sets up a contingency reserve to deal with any future problems; and covers the current shortfall in the Irish budget. My noble friend Lord Tugendhat quite rightly questioned whether Ireland will grow sufficiently out of its problems. However, I remind noble Lords that the IMF has been central to the construction of the package and, from its wide experience of similar situations, it understands the importance of growth in an economy such as Ireland’s. I recommend to noble Lords the IMF’s interesting, well written and cogent analysis of the reasons for Ireland getting into this situation, and the logic for the construction of the package which is central to putting the Irish economy back on its feet.

The Bill gives the Treasury the statutory authority to deliver the UK’s bilateral contribution to the package. In this way, the UK will be ready in the new year to help one of our closest international partners in its hour of need. I was particularly grateful to the noble Lord, Lord Bew, and to my noble friends Lord Cope of Berkeley and Lord Tugendhat for pointing out the good will that has been created in Ireland by our response. We are doing this because it is in the economic interests of the UK to do so; nevertheless, it is good that we are doing it for a close friend. The noble Lord, Lord Bew, succinctly put the matter into its Irish historical context. I very much take his point that we need to think about how we build on the good will that has now been created. That point was indirectly touched on by the noble Lord, Lord McFall. It sits somewhat at odds with the stance taken by the noble Lord, Lord Liddle, who painted a picture that I do not recognise. He tried to paint us into an “our problems, their problems” situation. I thought that my noble friend Lord Tugendhat, who has deep and distinguished European experience and contributions to draw on, painted a much more nuanced and balanced picture. Of course, we are at the centre of the European debate. We are engaged with our European partners, not least for the reason that my noble friend gave: that we are one of the largest economies in Europe. Whether it is leading the way on bank stress tests and getting Europe to follow where the UK started on short-term stabilisation, or looking at the other end of the range of issues that needs now to be considered—for example, questions about structural reform programmes, the Europe 2020 vision and the lessons of this crisis—the UK is absolutely at the centre of the discussions.

[Lord Liddle]

What plan have the British Government and the Prime Minister put forward for the eurozone? Why does the Prime Minister keep saying that it is for the eurozone to sort out its problems, while knowing that so much of the growth that is being forecast, which is absolutely essential to British interests and his own prospects of re-election, requires there to be robust export growth to the eurozone?

[Lord Sassoon]

These are all factors that mean that we need, with the EU 27, to make sure that the structural reforms are driven through and that we get the benefits of completing the single market project and so on. However, my noble friend Lord Tugendhat again got it exactly right—I would not agree with every nuance of his analysis, but he got the essential point right—in saying that just because we are very positively engaged at the centre of all those other issues does not mean that there are not critical differences, because we are not part of the eurozone and this Government will not take us into it. It is therefore for the eurozone to sort out its own permanent mechanism for dealing with any other issues that arise out of membership of the euro. That is the fundamental difference between the UK’s position and that of other of our partners in Europe. I genuinely fail to see why the noble Lord, Lord Liddle, seeks to paint the position in such stark colours. The fact is that we are in a different position from that of a number of the largest trading partners in Europe, which needs to be reflected in the permanent arrangements that will be put in place. My noble friend Lord Tugendhat explained that in much more masterly terms than I will ever be able to do.

Some questions were asked about the economic and market analysis of the situation, not only of how we got here but how we go forward. I listened with interest to the exchange between the noble Lord, Lord Davies of Stamford, and my noble friend Lord Lamont of Lerwick. The rather succinct and pithy remarks of my noble friend better encapsulated the situation in which Europe finds itself and in which it is clear that the fact of the euro cannot be ignored. That takes us back to why the eurozone needs to think about the consequences and the lessons of this crisis for a permanent mechanism.

In answer to the specific question of the noble Lord, Lord Davies of Stamford, I restate that the loan to Ireland does not add to our deficit. It increases the borrowing on one side of the UK’s balance sheet, but we have an asset in terms of the money that will be owed to us by Ireland. There will be an increment to the fiscal position by the net interest margin, estimated at current interest rates to be some £440 million. That is the only element that should go through the current balance.

One or two comments were made on the process of the Bill. I am grateful to my noble friends Lord Cope of Berkeley and Lord Tugendhat for their endorsement and recognition of the fast-track approach that we have taken. It is necessary that we give confidence to our European partners and the IMF in putting this package together that the UK is ready at the earliest time to deliver on our commitments. I accept my noble friend Lord Cope’s analysis of the constitutional position in another place.