Euro Area Crisis Update (EUC Report)

Lord Maclennan of Rogart Excerpts

Wednesday 23rd July 2014 Lords Chamber

[Lord Maclennan of Rogart (LD)]

My Lords, this report is helpful and I am glad to acknowledge that the committee proposes to continue reviewing these developments every six months. I think that will be exceedingly important.

There have been some positive developments, which have flowed largely from the European Central Bank. That is acknowledged by, among others who gave evidence to the committee, Sir Jon Cunliffe of the Bank of England, who noted that the redenomination of currencies was now very unlikely. However, as the noble Lord, Lord Harrison, said, we cannot take anything for granted, and we must watch very carefully. As the report suggests, and the Minister who replied to the report agreed, we must maintain and develop constructive relationships with the euro group and the ECB.

Will the Minister tell the House how that process is being maintained, particularly as we in this country appear to be the odd man out, seeking special deals for Britain without allies or even being particularly specific about what these deals are? It is quite clear that the United Kingdom must support our EU partners on the path towards greater integration of the euro area, but there is of course a risk, if that goes ahead, that we shall find ourselves increasingly isolated as a country and decreasingly influential in decision-making. I entirely endorse the view of the committee that we should be looking to strengthen the role of the City of London as the banking centre for Europe. However, if we remain completely at arm’s length from these developments, that will be an increasingly difficult project.

In their letter of reply to the committee, the Government suggested that we should,

“tackle unsustainable levels of debt, reform labour markets, and support business creation and innovation”.

It would be helpful if the Minister could indicate how these steps are to be taken. With banks currently withholding loans and, as Sir Jon Cunliffe said, with cross-country lending diminishing, that seems quite difficult. The Government should make it clear that they do not intend to limit cross-border immigration of skilled workers as part of the European Union’s so-called reforms. We need these developments if we are to have new business creation and innovation. Without them, there will be particular difficulties for small and medium-sized enterprises.

We look forward to hearing what the comprehensive assessment process of the European Central Bank will reveal. It is a difficult exercise for it because if it reveals too many banks being in difficulties, that could actually not strengthen the system, although we were very happy to hear from Mario Draghi as long ago as June 2012 that the bank would do anything to safeguard the future of the euro. It would be interesting to know what the Government are doing in the negotiations that they are participating in with the euro group to ensure that new arrangements work for those outside the euro area. I do not hear much about that specifically, but it would be helpful to know.

The noble Lord, Lord Harrison, spoke about the deflationary spiral. It seems that that is not an imminent threat but it is something that we have to watch. I would also be interested to know how the Government view that and what they are saying about the austerity programmes that could induce such a spiral.

This is a factually interesting report with interesting evidence from witnesses, but we need more particular replies from the Government. They are generally supportive of the report, but they have not given much indication of how they intend to proceed.