Eurozone Crisis

Chris Leslie Excerpts

Tuesday 15th November 2011 Westminster Hall

[Chris Leslie (Nottingham East) (Lab/Co-op)]

I was interested to hear the comments of the hon. Member for Stroud (Neil Carmichael). I have learnt a lot, including Gerald Ford’s attitude to New York city and the history of the Ugandan shilling. At one point in the debate, I was almost feeling sorry for the Minister, given the heat that he is falling under and that he is simply following orders—it is not entirely his fault—but in the short time available, he needs to explain not only the answers to the questions asked, in particular by the hon. Member for Basildon and Billericay (Mr Baron), who gave a thorough and refreshing contribution, but an area of policy that has not been touched on as much as it should have been and that is central to the debate, which is growth. How will we rejuvenate growth, not only in the UK but throughout the eurozone, as a way to solve the crisis?

The Office for Budget Responsibility continues its relentless drive to downgrade economic prospects, and the European Commission has forecast a massive change in our fortunes. Last year, gross domestic product growth was supposed to be 2.2% in 2011, but a couple of weeks ago, that prediction was downgraded to only 0.7%. We are now forecast to have the slowest growth in Europe, with only Greece, Italy, Portugal and Cyprus growing more slowly in 2011. The Office for National Statistics, however, shows that exports to the euro area were rising by 17.3% in the third quarter, so the eurozone alone cannot be an excuse for the UK’s lack of growth.

Given the fragility of our economy and our vulnerability, I accept that prolonged uncertainty in the eurozone could worsen our position, but it would be disingenuous of the Treasury to suggest that our woes are caused by the eurozone situation. I would be worried if it genuinely thought that to be the case.

[Stephen Hammond]

Will the hon. Gentleman give way?

[Chris Leslie]

Not in the short time that I have available. I prefer to hear the Minister and to deal with particular issues, some of them raised by a number of hon. Members. For example, the hon. Member for Cities of London and Westminster (Mark Field) discussed bond yields and the dangers of the Government giving the impression that we are a safe haven relative to the rest of the world. I am worried about the complacency shown by the Government. Bond yields are as much a function of our relative independence from the euro and the flexibility of having our own central bank. The director of the National Institute of Economic and Social Research, Jonathan Portes, made it clear recently that our gilt yields declining to an all-time low was partly a result of the economy’s weakness, because safe-haven flows are typically accompanied by a rise in the value of the pound or rising stock prices. He could not have been more concise or clear:

“The reason people are marking down gilt yields is because the economy is weak”.

We should not see that entirely as the be-all and end-all of economic policy. The hon. Gentleman is right that we should see it not merely as a safe-haven function, but as a bubble that may burst at any point.

What should the Government be doing? The crisis is far from over, even though the markets have calmed somewhat this week. My right hon. Friend the Leader of the Opposition rightly pointed out that the European summit—the G20 summit—finished prematurely, without adequately solving the difficulties with the EFSF and the permanent bail-out arrangements, and that a further European summit might be necessary to thrash out the issues properly. We also need a proper strategy for jobs and growth throughout Europe and concrete steps to support demand immediately. We have to end the prevarication about the role of the European Central Bank as lender of last resort and to give proper attention to what it takes to make that EFSF firewall stand behind eurozone members.

Hon. Members mentioned the IMF in some detail. In the summer, before the details of the permanent eurozone bail-out fund had been agreed, the Labour party urged the Government to pause before granting additional funding to the IMF. We called for the commencement of the larger eurozone-only bail-out fund to be brought forward and for the Government to negotiate an end to our liabilities via the temporary EFSM. The Minister at the time did not explain what the UK Government were doing to help to ensure that an adequate and permanent EFSF was put in place and, as I said, the European summits came and went, despite the Prime Minister’s attendance.

Ministers, including the Prime Minister, have repeatedly misrepresented our view of the IMF’s role. Today’s debate shows that our concerns are shared across the party divide. Tim Geithner in the United States and people in many other countries have also voiced their reservations. In principle, because of the IMF’s generally vital role in the global economy, we support an increase in its subscription, but I make no apologies for questioning the Government’s stewardship of our public funds. We have a duty to protect the best interests of the UK taxpayer.

We have consistently said that the IMF’s job is to support individual countries with solvency crises and not to solve a structural problem caused by eurozone countries unable to agree the necessary steps to support and maintain their own monetary union. The IMF does have a role around the world and should have the necessary resources, but there should be no IMF funding to plug the gap in the eurozone’s bail-out fund and to do the job that the ECB should be doing. The only way to ensure market confidence in the eurozone is for the ECB, alongside that permanent bail-out fund, to be given the political support that it needs to act as lender of last resort when liquidity problems arise. That is the logic of monetary union that the 17 eurozone countries are signed up to.

I want to hear the Minister’s answers, so I will curtail my remarks. It is vital for the Government to wake up and realise the role that a growth strategy must play in Europe and in the UK. Without that, there could be serious ramifications for the UK and our economy. If the Government fail to act as an honest broker, stepping up to show the leadership that many hon. Members have urged in today’s debate and so that the ECB becomes lender of last resort and that the EFSF has enough weight to become an effective firewall, the eurozone crisis may well deepen further. The Chancellor continuing to talk about Britain as a safe haven betrays a relaxed complacency in the Treasury that is not warranted. Such an approach is misinformed, neglectful and very dangerous in the situation that we face.