Eurozone Crisis

Lord Wolfson of Aspley Guise Excerpts

Thursday 1st December 2011 Grand Committee

[Lord Wolfson of Aspley Guise]

My Lords, it is with great pleasure that I speak for the first time in your Lordships’ House. I thank your Lordships for the extraordinarily warm welcome that I have received from everyone I have come into contact with here. It is a genuine inspiration and privilege to hear the quality of debates and observations in this House. I also thank the officials and staff for their never-ending patience, helpfulness and professionalism, which are such a great asset to this institution.

I thank my supporters: my noble friend Lord Leach of Fairford, who has been something of a political mentor to me, and my father, my noble friend Lord Wolfson of Sunningdale. I realise that not so long ago it would have been a contradiction in terms for a father to introduce his son. For me it was an unusual pleasure and an apt one. My father’s incisive mind, his deep work ethic, his moral courage in both business and his political life and his philanthropic convictions have been an inspiration to me. I hope that they will remain so and that they will guide me. I am not just saying that because I am his heir, by the way, in case anyone was thinking that I was just creeping.

My father’s qualities reflect some of the character of his uncle, the son of a Jewish eastern European refugee who founded a great business empire and went on to do charitable works. Those have been conscientiously carried on by his son. Indeed, it is his charitable works that are more of an inspiration. It is a lesson in capitalism that it is not necessarily the making of the money but the wise spending of it that is a testament to greatness in a capitalist society. It is also a remarkable testament to this country that my great-grandfather was able to count among his descendants within three generations, three Members of this House and a Baronet. It is an extraordinary reflection of the tolerance, openness and opportunities afforded by this great nation, and it is an honour, to serve in this House which, over the centuries, has done so much to shape and protect the laws and liberties of this land.

Today, we are talking not about protecting our laws and liberties, but protecting our finances. I worry about all the hard work that is going into propping up the eurozone at the moment. To use an analogy, it is like a group of men standing around a fire on a freezing cold night. The fire is beginning to dwindle, and slowly but surely they decide that the best thing they can do to keep it going is to take their coats off and burn them. At some point I worry that we will run out of coats. The German standing by the fire does not have an infinite supply of clothes to burn on the fire. If nations are to behave responsibly at this time, we must face up to the possibility that the eurozone may well collapse. The noble Lord, Lord Ashdown, instructively pointed out that the euro may survive, but that it is likely to do so in a lesser form.

The turmoil and problems caused by a collapse would be enormous, but I do not believe ultimately that the reason for it is anything to do with the financial markets; it is to do with the labour markets. It is to do with the structural problems that have caused these financial problems. The fact is that over the past 10 years, Greek wages have risen by around 30 per cent relative to German wages. Wages in Spain and Portugal have risen by 20 per cent more relative to German wages. That has locked them into a structural lack of competitiveness. Internal devaluation is simply not an option, because people have mortgages and debts. If they take a pay cut, they cannot take a debt cut. If they take a debt cut, that is a real devaluation; that would mean leaving the eurozone. What happens when countries leave the eurozone is the challenge I am most worried about.

The noble Lord, Lord Lamont, was kind enough to refer to a prize that I have initiated. I am hoping that, having heard this debate, there will be a Lords entry and we can pool our resources, although obviously I would not be part of the team myself. The big problem for me is not what happens to trade, because I think that it will sort itself out. I am a trader and I am used to dealing with big swings in the valuation of currencies. The major problem is the banks. The position that we in this country must worry about is the position of the British banks with subsidiaries in southern European countries, particularly where they have more loans and mortgages outstanding than they have deposits. I would be interested to hear the Minister’s view on this. Do the Government have a clear view of what the exposure of British banks would be in the event that certain countries leave the eurozone? British banks could be left with an enormous exposure to debt that would have to be written off. The problem is that whatever view we have at this time of the size of that exposure, it can change. That was pointed out by my noble friend Lord Flight. It can change overnight, and indeed some £500 billion-worth of those deposits have already moved from the weaker countries to the stronger ones.

It is my belief that unless something is done urgently to control this flight of capital, the crisis that will eventually emerge will be far worse. We are facing a Catch-22 of enormous proportions. If the Governments of Europe begin to impose anything that looks like capital controls, that in itself will precipitate the end of the eurozone. If they do nothing, the end of the eurozone will be that much worse.

I finish by saying that, in my view, it is a far better approach to take the bolder of these two choices, and address the issue of capital flight now, before it is too late, with all the risks associated with it. In a case where you have to choose between making a bad decision and making a very bad decision, it is always best to make the bad one.

I thank your Lordships for hearing my maiden speech with such silence and respect and even with apparent interest. I, too, am disappointed that I was not able to make it in the Chamber.

[Noble Lords]

Hear, hear.

[Lord Wolfson of Aspley Guise]

However, I am at least able to say that I made it in front of a full house, so I thank your Lordships very much.