Euro Area Crisis: EUC Report

Debate between Lord Marlesford and Lord Lea of Crondall

Monday 21st May 2012 Lords Chamber

[Lord Marlesford]

My goodness, the noble Lord is certainly a speculator.

If Germany is prepared to pay not the cost of bailing out Greece but the cost of redeeming the Greek euro debt which already exists, we have to think of something better than going into a Mickey Mouse currency such as the drachma. The solution would be for Greece to leave the euro area but to continue to use the euro. There are plenty of examples from past economic crises, such as Latin America using the dollar and Yugoslavia using the deutschmark after Tito died. The whole point is that using the euro with a new central bank for Greece would impose a discipline on the central bank and on Greece. Like anyone else, it would be possible for it to use only the currency that it could afford. It would not have any relation or connection with the European Central Bank. It would be paddling its own canoe but it might well have to have some help from the IMF. However, it might well produce a remarkable resurgence. Indeed, a noble Lord talked about the possibility of financing certain projects with eurobonds. This might be very possible if people could see sound opportunities in Greece and they knew that the currency being used was a proper international currency. I think that that would be a real help.

[Lord Lea of Crondall]

The noble Lord has painted a fascinating scenario, but how does he get out from under the problem he referred to whereby, in a sense, the demagogues fail to acknowledge that the real fall in living standards would be a lot greater in the drachma devaluation scenario than in the internal devaluation of taking more medicine in the eurozone?

[Lord Marlesford]

When Sub-Committee A looked at the bailout, we saw again and again that the figures produced as necessary to prevent a catastrophe became ever greater by magnitudes. There is the old cliché about “A billion here and a billion there—you are talking serious money”; we almost reached the stage where it was “A trillion here and a trillion there”. If the prospects are for bailout, and that just continues, whatever happens and however much worse it gets, it has been fairly conclusively proved that people will take advantage of a bailout. It is human nature. It was the present governor of the Bank who said that if there is a run on the bank, the sensible thing is to join it. Therefore, if the bank is prepared to bail you out, the sensible thing is to accept the money.

My solution is that you impose a requirement to earn the euros—but with some help through the IMF, eurobonds, or eurobond investments—and you are thus able to rebuild your economy. I do not see, from the point of view of people living in Greece, that there is much difference between perhaps starting off with saying, “We are going to recreate the drachma; and the drachma is equal to a euro”, and then finding that the next day it is worth only half a euro, or, as the noble Lord, who likes speculating on these matters, might think, the drachma would soon be worth only a quarter of the euro. It would be a great deal better to recognise that the flexibility of having to have the euros with which to buy and pay for things would itself generate a reality that, I believe, is lacking.