European Union Membership (Economic Implications) Bill [HL]

Lord Ryder of Wensum Excerpts

Friday 25th November 2011 Lords Chamber

[Lord Ryder of Wensum]

My Lords, I congratulate the noble Lord, Lord Pearson, on producing the Bill and, while quibbling with many of the details, I applaud the principle. For years, the noble Lord has displayed consistency over Europe, always coupled with courtesy and patience in your Lordships’ House.

We require an audit of the costs and benefits of our place in the European Union. Europe is in economic chaos, chiefly of its own creation, as my noble friend Lady Noakes underlined in her forensic speech a few minutes ago. Almost 20 years ago, the Maastricht treaty was supposed to restrain public spending in member states. However, in no time Greece joined the eurozone under entirely false pretences as every member state ignored the Maastricht conditions. Before long even the Germans fractured the so-called stability pact. What was good for this core cat became better still for the peripheral PIGS. The European project may have appeared desirable, if not essential, at the outset, but it was always Utopian, as the noble Lord, Lord Bilimoria, has just reminded us. I have always shared Macaulay’s view on Utopia. He said that he would prefer to own “an acre in Middlesex” than “a principality in Utopia”.

In passing, I observe a slight Utopian resemblance between the European project and Marxism. When the failure of their creed is pointed out to Marxists, they invariably respond by claiming that it has never been tried in its correct form. The same excuse is offered by proponents of the European project. Day after day, as the project dithers to a halt, we hear that the absence of fiscal and even political union caused the eurozone breakdown. Now I read that even our Prime Minister and Chancellor are in favour of fiscal union. I wonder whether they know what it entails. Fiscal union requires a centralised treasury, shared tax and spending, common sovereign debt, huge transfers of cash from north to south and, of course, the ECB to act as lender of the last resort. I expect the Prime Minister and Chancellor are confusing fiscal union with what the Commission and Mrs Merkel call a stability union, whereby stronger discipline and convergence will be imposed in the European Union. They say that member states would be obliged to submit draft budgets to Brussels before they are introduced to sovereign Parliaments. This is part one of the plan to prolong the life of the eurozone. However it will not survive, if ever it exists, because the debt markets will behave like the currency market did over the narrow band exchange rate mechanism 19 years ago.

Other proponents of the euro, or the project, expect the IMF to act as the cavalry. They overlook the fact that IMF action is always locked into budget deficit reductions, monetary policy and interest rates. However, Greece cannot respond like a sovereign nation because it lacks powers over monetary policy and interest rates. Nor can Greece devalue its currency. Greece and Italy, as well as other countries, belong to the wrong currency. For them, austerity is insufficient. Devaluation is a necessity. Their currencies are misaligned by as much as 40 per cent. Nor can the structural imbalance be rectified by debt deflation, even if the Germans chose to reflate themselves. The Greeks and Italians should secede from the euro in a managed manner. The short-term shock to Europe will be better than the inevitable longer-term disaster.

Parents of the euro promised greater economic stability. How could this possibly be achieved when each economy, as has been underlined in the course of our debate, advances at a different rate and in a disparate direction? The euro has generated uncertainty and volatility, producing new and perilous—yes, perilous—divisions across the continent. There is no credible historical example of a currency union without political union and no precedent for a currency lacking a lender of last resort. The eurozone experiment resulted from political leaders failing to grasp the essence of economics. Now the greatest danger to the continent comes from quack potions designed to keep the euro alive. Better an orderly break-up now than a disorderly one later. No wonder the chairman of the China Investment Corporation refuses to offer assistance to the EU as long as it persists with the currency as well as outdated labour markets and welfare systems. It is against this background that the noble Lord, Lord Pearson, is entitled to demand answers to the question posed in his Bill. I go back, if I may, to Macaulay, who declared:

“A single breaker may recede; but the tide is coming in”.

In time it will wash away the Utopian euro referred to by the noble Lord, Lord Bilimoria, and myself earlier in my speech.