Alan Johnson
Main Page: Alan Johnson (Labour - Kingston upon Hull West and Hessle)Department Debates - View all Alan Johnson's debates with the HM Treasury
Loans to Ireland Bill
Alan Johnson Excerpts(13 years, 9 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Osborne
If the hon. Gentleman will allow me, I have already taken an intervention from him. Many Members want to speak, and I have spoken for an hour.
Mr Osborne
Well, I took a lot of interventions. I’m sorry about that, but there we go—there’s no gratitude in this place!
Let me conclude. The Government have taken action to put our own house in order. We were once seen as part of the problem; we are now part of the solution. It is in our national interest to help Ireland, and I commend this Bill to the House.
Alan Johnson (Kingston upon Hull West and Hessle) (Lab)
We will support the Bill. The more I listen to the Chancellor, the more my admiration and respect grows for his predecessor, my right hon. Friend the Member for Edinburgh South West (Mr Darling). On 8 May, my right hon. Friend negotiated arrangements under which the UK remained outside the €440 billion European financial stability facility and ensured that we did not contribute as much as a rusty old drachma to the bail-out of Greece.
Alan Johnson
I will take interventions later.
In his statement on 22 November—repeated today—the Chancellor said that he counselled his predecessor against joining the European financial stabilisation mechanism, which was a pre-existing fund involving all 27 member states and was worth only a seventh of the larger facility. As the Chancellor said, my right hon. Friend the Member for Edinburgh South West is in his place and if he catches your eye, Mr Deputy Speaker, he can give his recollection of that conversation.
However, given that the mechanism—the smaller amount—was decided by qualified majority voting, it seems that agreeing to ensure that we stay out of the €440 billion EFSF was a good deal for our country, particularly as my right hon. Friend ensured that none of the mechanism of which we were part was used to bail out Greece. That was a good deal all round, and a lesson for our inexperienced Chancellor in the art of negotiation. Indeed, the quip going round a couple of years ago, when the collapse of the banking industry in Iceland was closely followed by what happened in Ireland, was: what is the difference between Iceland and Ireland? Answer—one letter and six months. A modern variation could be to ask, what is the difference between Darling and Osborne? Answer—five letters, six months and £6.6 billion.
Mr Cash
When the shadow Chancellor says, as the Chancellor said, that the process was triggered by a qualified majority vote, I am sure that he would agree that that is not strictly true, because it resulted from a request by a member state. The final solution or arrangements are made by virtue of a qualified majority vote at the end. That is a qualification, but it does not alter the fact that, on the basis it was explained to us, article 122 was almost certainly unlawful and the use of article 136 would have been a better route. However, we appear to be entrapped into article 122 for the current purposes.
Alan Johnson
I believe that the hon. Gentleman will seek to address that in his amendment to clause 3, which we will discuss later. On the specific issue, there is no doubt that the mechanism was decided by qualified majority voting. All 27 European member states were part of that. I know from experience of negotiating in Europe over many years that it is a pretty turgid process and one has to be on one’s toes. My right hon. Friend the Member for Edinburgh South West can speak for himself, but I think he got a very good deal for this country on Greece.
The Chancellor must take responsibility for the deal that he has negotiated and not try spuriously to blame his predecessor, as he did again in his evidence to the Treasury Select Committee on 8 December. He had a choice about whether the UK should contribute to the Irish rescue plan. In principle, he has made the right choice, but before us today is a hastily drawn-up Bill that does not set out the terms of the loan, the interest rate or the repayment schedule. Colleagues from all parties will want to explore and probe those matters in Committee, and we particularly want to get to our amendments on clause 2, so a goodly proportion of the time available to us this afternoon may be better spent on that. It is therefore not my intention to detain the House for long on Second Reading.
David T. C. Davies
Does the shadow Chancellor share my gratitude that the decision is being taken in this Chamber and not by a group of unelected bankers in Frankfurt? That is because we did not listen to Opposition Members—we have never supported joining the euro, which would have meant that the decision would not have been ours to make in the first place.
Alan Johnson
I always try to avoid sharing the hon. Gentleman’s pleasure. I shall come to the nature of the deal, because in debating the Bill we are discussing one element that constitutes a little more than half of the money that the UK taxpayer is putting into the deal.
The argument for treating Ireland as a special case is clear. I shall reiterate some of the points that the Chancellor made. Our two countries are intertwined in commerce, in trade, in banking, in culture and in sport. We share a language and a land border. Not only is Ireland one of our five largest export markets but, as the Chancellor said, one part of the United Kingdom—Northern Ireland—sends 40% of its exports across the border to the Republic. The situation in Ireland could cause significant damage to UK financial institutions and create instability in both sovereign and bank debt markets. The UK is Ireland’s largest creditor—we are talking about almost €112 billion—and I understand from a newspaper report last week that the Royal Bank of Scotland and Lloyds have Irish loan books worth 82% and 53% of net assets respectively.
In its report last month, the International Monetary Fund singled out Ireland to demonstrate what it called the “key underlying vulnerability” of UK banks’ exposure to foreign banks. The support programme assures the protection of senior bond holders in Irish banks from any losses, thus affording a greater level of protection to UK banks. For all of those reasons and many more, it is in this country’s interest to support this package.
I want to raise three concerns. The first, which was raised in a couple of interventions—including by the hon. Member for Stone (Mr Cash)—is the open-ended nature of the commitment. There is a distinct possibility of more money being required for Ireland after 2013, given the tendency of Irish banks to downplay the severity of their situation and the tough conditionality being applied alongside concerns about European growth. In those circumstances, should we not make it clear to our European partners that the EFSF must be used for any further financial support, rather than giving the impression that this is a well into which further buckets can be dipped?
That is particularly relevant to my second concern about the balance between the contributions made by the various mechanisms. The €440 billion EFSF—the facility— for eurozone countries only is being tapped for 4% of the total resources that eurozone countries have agreed to make available for Ireland. The smaller EFSM—the mechanism—of which we are part and to which we contribute, was not used at all for the Greek bail-out. The EFSM is offering 37.5% of its available resources for the Irish bail-out. Why was that formulation chosen and why is the total amount we are contributing double the amount that we would have had to pay if we were a eurozone country?
Mr George Osborne
I am not sure that the shadow Chancellor is correct in that assertion. First, our contribution has been calculated on the basis of what we would have paid if we had been part of the facility. That is how the £3.25 billion figure was broadly arrived at. Secondly, the mechanism currently in use was created after the bilateral agreement was put together for the Greek bail-out. It was never available to be used for the Greek bail-out, which took place as a series of bilateral loans across Europe. As I understand it, over the May weekend the facility was put in place to address the crisis and article 122 was drawn upon to create the mechanism, so it could not have been used for Greece at that point.
Alan Johnson
I am grateful to the Chancellor for that intervention. However, it does not explain why the £3.25 billion he has just mentioned is the bilateral loan. That is the equivalent of what we would have put into the Irish bail-out had we been members of the eurozone. However, we are also putting in £2.6 billion through the EFSM and £800 million through the IMF. With the bilateral loan added to the other donations of British taxpayers’ contributions that we are making through the mechanisms, we are putting in double the amount of money that other European Union countries are contributing.
Charlie Elphicke
Surely, the right hon. Gentleman’s point highlights the lack of wisdom in signing us up to the stabilisation mechanism on 9 May.
Alan Johnson
This may be news to the hon. Gentleman, but his party is in government now. As I said, my party ensured that we contributed nothing—not a penny, not a euro, not a drachma—to the Greek bailout. The Chancellor is coming before this House with a £6.6 billion contribution to Ireland, which we support, but the various aspects of the mechanism need to be explained and understood.
Alan Johnson
We have the €60 billion fund, about which the hon. Member for Dover (Charlie Elphicke) intervened, and we have a second fund of €440 billion. I am simply pointing out—the public deserve to know this—that only 4% is coming from the larger amount and 37% from the smaller amount. I am curious about that, and we need to understand the logic of it.
Mr Hollobone
Is the shadow Chancellor’s point that the European Central Bank is keeping these funds to rescue Portugal, Spain and perhaps Italy in due course?
Mr Mark Field
I will try to make a more helpful point. Given that the Opposition are supporting this loan arrangement, does the shadow Chancellor think it desirable that part of it should be bilateral and therefore agree with the structure that the Chancellor has put in place?
Alan Johnson
I do agree that part of it should be bilateral, for all the reasons that I have mentioned. As various members have commented, however, we need to understand why the formulation has been made—because it could be setting precedents; because there is a larger pot of money out of which a lesser sum of money is being brought; and because the Chancellor can come back to this House, by virtue of a statutory instrument and seek further money for Ireland. We need to be clear what we are letting ourselves in for.
Alan Johnson
No, I will not give way—perhaps later.
I am also curious about the following piece of distorted logic. In the Treasury Committee, the Chancellor said that it was okay to set austerity aside in order to make a loan to Ireland because of the promise of repayment. He said that this loan “adds to our debt” but
“We’re getting back a very important asset which is a commitment from the Irish government to pay us back with interest.”
What puzzles me is which part of that definition of a sensible loan did not apply to Sheffield Forgemasters. [Hon. Members: “Oh.”] I am sorry that Government. Members groan about British manufacturing industry. My right hon. Friend the Member for Sheffield, Brightside and Hillsborough (Mr Blunkett) raised this issue during the Chancellor’s statement on 22 November. Why does the Chancellor agree a huge loan to Ireland on the basis he cited but reject a modest £80 million that would be paid back with interest and boost the opportunity of British manufacturers to have a substantial stake in the civil nuclear energy supply chain, which is currently dominated by overseas companies? At a time when we are looking for jobs and growth, the logic of that escapes me.
My third concern is the prospect of each eurozone country being bailed out as its economy falls into crisis without addressing the root causes of the continent’s problems.
Mr Cash
Is the shadow Chancellor aware that serious discussions are going on about increasing the €400 billion facility, and probably doubling it? In response to my hon. Friend the Member for Kettering (Mr Hollobone), is not the whole European Union, not to mention the world at large, confronting a very dangerous and difficult situation?
Alan Johnson
Yes, but that is a matter for the eurozone. If the Chancellor is right in his prediction that perhaps this can ensure that we come out of the €60 billion mechanism, the facility and the other moneys, then fine, but as we are making a big contribution—more than we would have done had we paid the amount that a eurozone country would have paid to rescue Ireland—we must be in a position to influence this debate.
Mr George Osborne
I must correct this point. We are paying pretty much exactly what we would have paid if we had been a member of the euro; that is how the bilateral loan is being calculated. Germany is paying both through the facility and through the mechanism, and so are France and the other members of the euro. Other countries are paying twice. Ours is a bilateral loan like those of Sweden and Denmark, and they too have been calculated in a similar way.
Alan Johnson
I am grateful for that clarification; we will look at that very carefully. What the Chancellor is saying is that France and Germany, through their IMF contribution—[Interruption.] The Financial Secretary says no. The point I am trying to get at—perhaps the hon. Gentleman can clear this up when he replies to the debate—is that if the UK is putting in a bilateral loan that is equal to the amount that we would have paid as a eurozone member, and we are putting in money through the IMF as well as £2.6 billion through the mechanism, how does that relate to the money that France and Germany are contributing? As far as I am aware, they have no bilateral arrangements, so the money is going through the IMF, or through the stability facility which accounts for only 4% of the resources. That is a point that we need to hear about.
Claire Perry (Devizes) (Con)
The shadow Chancellor says that he supports the idea of a bilateral loan because Ireland is such an important trading partner for Britain. I am delighted to hear that he is going to support the Bill. However, will this be another situation like the graduate tax whereby he will say one thing and the rest of the shadow Cabinet will say another?
Alan Johnson
I will not bother to take an intervention from the hon. Lady next time, because that point does not even begin to be germane to this problem.
My third concern is how we are going to draw a line under this matter. We had the Greek bail-out, and now we have had the Irish bail-out. There is no sign of any real stability in the eurozone to stop such events happening again.
Andrew Gwynne (Denton and Reddish) (Lab)
Is it not important that Europe gets ahead of the crisis? As we saw with the Greek bail-out, such short-term measures do not solve the fundamental problems across the eurozone.
Alan Johnson
I am coming to exactly that point.
Some Conservative Members think that the root cause is the single currency. I do not share that view. The euro had nothing to do with the property boom and bust, and a failed euro would be an economic and political disaster with repercussions well beyond our continent. Ireland needs a healthy eurozone, or it will end up with years of deflation and unemployment, and we will be less likely to have our loan repaid.
As the loan that we are being asked to approve is equal to the amount of money that we would have contributed had we been a member of the eurozone, surely that gives us the right to influence the necessary debate on what action is needed to address the underlying causes of this recurring crisis. This bail-out buys time, but there is no sign that Europe’s leaders know how to put it to good use. In May, we had the Greek bail-out; six months later, we have to deal with Ireland. In neither case is there much sign that these countries have resolved the core dilemma, which is solvency.
Collective austerity across Europe offers countries with high debt burdens no way out. Cutting demand in Germany is the last thing that Ireland needs at the moment. What we are seeing in Europe bears out the IMF’s conclusion that fiscal austerity does not boost short-term growth and that deficit cuts are more painful if they occur simultaneously across many countries. Ireland needs a healthy eurozone with markets such as Germany consuming Irish goods, or it will end up with years of deflation and unemployment. Having engaged in repeated rounds of austerity, with VAT rises, welfare cuts and redundancies, Ireland still finds growth elusive: it has been consistently poor for the past three years. Indeed, the economy has shrunk in 11 of the 14 quarters since the beginning of 2007, and sluggish growth has made getting the deficit down much harder.
Mr Bernard Jenkin (Harwich and North Essex) (Con)
When a country becomes over-indebted, it can either enslave itself to the debt or inflate and devalue. Is it not clear that the fundamental problem is that none of the countries in the euro can inflate and devalue to get out of their problems? That is why some Conservative Members are saying that it is only a matter of time before some of these countries fall out of the euro, and that we would be better off planning on that basis than pretending that we can hold back an unstoppable tide.
Alan Johnson
The hon. Gentleman is right that the single currency gives Ireland no mechanism to devalue its currency, and that that causes it a problem. However, there are two extremes to that argument. The first says that the eurozone is unfinished business; what started as a currency harmonisation needs to move to the next stage. I heard the president of the European Central Bank say on the radio last night that the next stage should be political integration. My party does not agree with that; nor I am sure does the hon. Gentleman’s. Further integration is one extreme that we should not go to.
The second extreme says that if Ireland simply withdrew from the euro or the eurozone, its problems would be solved. I do not believe that to be the case. The eurozone has to recognise the problem that its countries cannot devalue and must find a mechanism that ensures that this problem does not keep happening to country after country. The hon. Member for Harwich and North Essex (Mr Jenkin) has a view, as do many of his colleagues, on the answer to this ongoing problem. I do not agree with him, but I believe that it is central to stop this happening to other countries, and to stop it being a regular event. The fragility of the recovery, especially in Europe, emphasises the need for decisive action to resolve the underlying difficulties faced by eurozone countries.
The situation in Ireland is a huge embarrassment for the Chancellor, exposing as it does his poor judgment and rich hyperbole. At the time of the comprehensive spending review, he claimed that our country was on the brink of bankruptcy. He now proposes a loan of an amount that is well over half the cumulative debt interest savings that he claimed he would make over the spending review period. There is also the paradox of his support for Ireland’s banks, but his opposition to the previous Government’s successful measures to protect British banks.
Finally, there is the Chancellor’s frequently expressed belief that Britain should look to Ireland for inspiration, which he expressed both before the banking crisis, when he urged us to emulate the “Irish miracle”, and since the crisis, with his desire to copy some of Ireland’s painful austerity measures. His gloriously misjudged 2006 article in The Times is now well known:
“Ireland stands as a shining example of the art of the possible in long-term economic policymaking”.
He is in good company. I shall quote from the Prime Minister in the Belfast Telegraph on 26 October 2006.
Alan Johnson
No, I will not give way. The Prime Minister said:
“That is why a priority for any Conservative government led by me will be to create a much better environment for business… We know it can be done. Just look at the Republic of Ireland.”
Two years later, at exactly the time when Ireland’s six largest banks were forced to borrow €20 billion from the European Central Bank, the Prime Minister said that Ireland had
“a ‘future fund’ of assets, providing security against future liabilities and unknown shocks coming down the line.”
Perhaps those on the Treasury Bench will update us on how that future fund is doing in Ireland. Finally, in June 2008, at a Cameron Direct event in Harlow, he said:
“When it comes to the engine room of the country, the economy, you know you can look across to southern Ireland where they have created a dynamic economy. Well we’ve got to do that right here.”
Our message to the Chancellor as we prepare to support his Bill is not to replicate Ireland, but to repudiate the measures that put its economy in such a perilous position.
We understand that there is an O’Donnell circulating a plan B in Whitehall against the Chancellor’s wishes. As the Chancellor said in The Times, the Irish have
“much to teach us, if only we are willing to learn.”