EU: Recent Developments

Lord Taverne Excerpts

Thursday 16th February 2012 Lords Chamber

[Lord Taverne]

My Lords, I challenge the conventional wisdom that prevails in much of the media, and most of the Conservative Party, that the eurozone is a disaster; that it was always bound to be a disaster; and that we are wonderfully fortunate not to be part of it. Certainly, at its inception, the eurozone made very important mistakes. There was a lack of fiscal co-ordination. I always thought that Pisani-Ferry was right in advocating an economic directorate not dissimilar to what is now proposed.

There is also no doubt that a European monetary union faces considerable disadvantages. Having one interest rate to fit all is a disadvantage; it cannot be denied that it creates problems. There is a problem, too, as many have acknowledged, with peripheral countries competing without the ability to devalue. It has been said that this makes convergence impossible. However, there was convergence within the European monetary union involving many peripheral states until there was a complete breakdown in fiscal discipline and a failure to achieve structural reform.

I do not think it is possible to say that Poland could not possibly join a monetary union because it is on the periphery. I think Poland, with its fiscal discipline, is in a good position to join a monetary union. Nobody talks about Ireland. Ireland suffered severely from the recent crisis, but it is interesting that there is no call within any of the three major parties there to leave the monetary union. Their view is that, overall, they have benefited from the euro.

It is part of this official story that we have done brilliantly by staying out. I am not advocating at this particular moment that we should join the euro, but there is a general view that we are so much better off because we stayed out. The main question is: have we really done so well by staying out? That certainly was the implication of the Prime Minister’s lecture to his partners at Davos, to which my noble friend Lord Newby referred. Have we had faster growth since the euro was first introduced? No, we have not. Have we had lower inflation than the eurozone during this period? No, we have not. Our inflation rate has been about double the eurozone average. In fact, inflation in Germany was lower than it was before the euro when it was still being governed by the Bundesbank. Have we achieved higher productivity? No, we have not. Have we achieved trade surpluses? No, we have not. When did we last have a current account surplus? Have we achieved lower budget deficits than most of the eurozone? Our budget deficit was about the same as that of Greece.

Of course the eurozone needs reform, but was it really appropriate for the Prime Minister to lecture his partners and suggest that they should follow our brilliant example? Also—I do not think he has much feel for Europe—was it wise for him at Mansion House to start by boasting that he was a Eurosceptic? That is not exactly the way to achieve the maximum co-operation from his partners.

A further boast is that the Anglo-Saxon model—this again was the implication of the Prime Minister’s Davos lecture—is infinitely superior to the social capitalism model in Europe. Of course, the Anglo-Saxon model has virtues and advantages, but today the disadvantages are rather more obvious. Our official declared principle is to maximise shareholder value, making assets sweat. What is the result? It is short-termism. In hard times, we reduce the labour force and seek to maintain dividends, even at the expense of investment. In Germany, in hard times, the tendency is to reduce dividends, minimise dismissals and maintain investment. Top pay as a ratio of the pay of the average employee is many times higher in the UK than it is Germany. Companies in Britain are for sale to the highest bidder, and employees’ views do not count. In Germany, through Mitbestimmung, employees have more say. They feel more secure in their jobs, they are more committed to companies and they are more inclined to increase the efficiency of their company because through security they make suggestions for innovation. This is part of the reason that German companies are so efficient at exporting and are so competitive.

Then there is the other question to which many speakers have referred: our influence in the world. After the veto, some sections of the Conservative Party seemed to glory in our splendid isolation, but we have become less influential. In the past, the talk in Europe was about what would be the attitude of Germany, Britain and France; now it is only a question of what will be the views of Germany and France. As the eurozone will grow closer and more unified—that is certainly likely to be the trend—we will become more marginalised. We will have no voice, no influence and no votes in the summits of the eurozone.

Do we really want a stronger voice for Europe in the outside world? China is a very important case in point. China would like to see a more effective European Union. It wants more co-operation with the EU, but that depends very much on closer unity, both economic and in foreign affairs. A recent, very interesting paper for the Schuman Foundation by Karine Lisbonne-de Vergeron points out what the attitudes in China are. We are now in great danger that we will decline as a voice of influence inside the European Union, that our influence will decline in relation to Asia, and, if we move away from the European centre, that our influence will also decline in the United States.

The Government are now trying to move away from the heady days of the veto, when the Prime Minister was greeted with cheers from his Back-Benchers. I hope that the Government—as indeed the noble Lord, Lord Howell, indicated—are firm now in their apparent view that we must maximise our influence. This is no time for myopic little Englanders.