Eurozone

Ed Balls Excerpts

Monday 10th October 2011 Commons Chamber

[Ed Balls (Morley and Outwood) (Lab/Co-op)]

Let me start by thanking the Chancellor for making his statement and for advance notice of it. It is right that he has today updated the House and the country on the ongoing crisis in the eurozone. It is also right that he and I will have the opportunity to debate the ongoing growth crisis in the British economy in the House on Wednesday.

A year ago the Prime Minister told the House that our economy was

“out of the danger zone”—[Official Report, 15 December 2010; Vol. 520, c. 901.]

We warned then that there was a global hurricane brewing in the eurozone, America and across the developed world. We also warned the Chancellor that ripping out the foundations of the house here in Britain with a reckless approach to deficit reduction was the wrong approach. The global hurricane is now swirling around us. With the eurozone crisis deepening, and in advance of Wednesday’s debate, will he tell us today whether he still believes that Britain is out of the danger zone and that we are still a “safe haven” in a turbulent world? With the European Central Bank unwilling to cut its interest rates, is it really the crisis in the eurozone that has prompted the Chancellor to change so radically his views on quantitative easing? Two years ago he called it

“the last resort of desperate governments when all their other policies have failed”.

We will return to the British economy on Wednesday, but the Chancellor is right to say today that the crisis in the eurozone now constitutes a direct threat to our flatlining economy, not least because only Greece and Portugal in the eurozone have had lower growth than Britain in the past year. With no growth, it is no wonder our interest rates are so low. He is also right to say that the threat is not only to our exporters, but to the stability and solvency of our banking system. Can he update the House on his latest estimate of the full exposure of UK banks to euro sovereign debt? Is the House of Commons Library estimate of a $187 billion exposure correct? Is it correct that, as part of his contingency planning, the Treasury has been working on detailed plans to inject further capital into Royal Bank of Scotland?

The Chancellor is also right that it is a great relief that Britain is not a member of the eurozone, although I was rather surprised to hear him last week give the credit to the Foreign Secretary, who was in opposition, on the Back Benches and writing history books at the time. I have long given up hope of getting any thanks from the Chancellor for that vital judgment. Above all, the Chancellor is right: eurozone leaders have prevaricated too long and need to get their act together to put in place a credible plan before next month’s G20 meeting.

Back in July, the Chancellor told the Financial Times in an interview that eurozone leaders had to “get a grip”, and he called for a eurobond, but what has happened since? Precious little. Has he urged eurozone leaders not just to increase EFSF funding, but to widen its role to help recapitalise troubled banks and to put in place first-loss guarantees on sovereign debt to stop contagion in Spain and Italy? Rather than talking to the newspapers over the summer, perhaps the Chancellor should have gone to those meetings and urged a Europe-wide plan for jobs and growth to get unemployment falling and deficits down.

What do we have today from the Prime Minister? Do we have a report back from weekend meetings with President Sarkozy and Chancellor Merkel? No, because our Prime Minister was not at the meetings; he was too busy dealing with a local difficulty. Instead, we have another interview in the Financial Times, and his solution is that eurozone leaders need to get out their “big bazooka”. Their what? He could have called for political backing for the European Central Bank to act as a lender of last resort in return for credible fiscal policies, for a euro area debt guarantee or for a European plan for jobs and growth, but “big bazooka”—what does it mean? Can the Chancellor explain? I made the mistake of looking it up on Google this morning, and I warn hon. Members, “Do not make the same mistake.”

To be fair, and in conclusion, the Prime Minister did call this morning for a five-point plan to deal with the eurozone crisis, although it was not clear from the Chancellor’s statement what those five points are or add up to, but let us hope that, with Britain badly exposed, our growth flatlining, unemployment rising and borrowing set to be higher than planned, when the Chancellor comes back to the House on Wednesday he will agree to back our five-point plan for jobs and growth here in Britain.

[Mr Osborne]

I welcome the shadow Chancellor to his place. When I heard that the Labour leadership were clearing out their shadow Treasury Front-Bench team today, I was worried that the Conservative party would lose its greatest electoral asset, but it is great to see him still in his place.

Let me address the right hon. Gentleman’s specific questions. First, he asked about the exposures to eurozone nations. The FSA publishes the appropriate information on that, on the exposures overall to peripheral economies and to other eurozone banks, and it is appropriate that it does so. On RBS, I touched specifically on that issue, because there has been speculation, but let me make it very clear: in our assessment, and in that of the FSA, RBS is well capitalised and liquid.

On the eurozone facility, let me answer the right hon. Gentleman’s specific question. I believe that it should be broad in application, as well as deeper in funds, and undertake as many operations as is required. He talks about meetings, but let me reassure him that I have been to many, many meetings over the past few weeks. There has not been a shortage of meetings; there has been a lack of leadership from eurozone leaders in those meetings. But, that is changing, and that is very welcome.

Frankly, it is absolutely astonishing that a shadow Chancellor, who led his entire party through the Division Lobby in July to vote against the increase in IMF resources initiated at the London summit by the previous Prime Minister, should accuse us of a lack of leadership in the international community. Let us just imagine if that vote had been won—presumably the right hon. Gentleman cast his vote hoping to win the Division—we, alone in the world, I think, would not be ratifying the increase in IMF resources, and I would have to turn up at those meetings and explain, “I am very sorry, but the British House of Commons does not want to use the Bretton Woods institutions to help us with one of the greatest financial crises of the century.” As I say, his lectures on leadership come a little thin, and perhaps he should practise what he preaches.

I end by saying this. We will have our debate on the British economy, but it would be hard to imagine the shadow Chancellor coming back from the Labour conference with his party’s economic credibility even lower than it was before he began the conference season, but there is still no recognition from him that his Government spent too much money, ran up a big budget deficit when times were good and spent more money than they had available—even though that is acknowledged by Tony Blair, who was Prime Minister at the time. The shadow Chancellor still thinks that the answer to a debt crisis is to spend more money. His five-point plan is, of course, a complete abandonment of the plan set out by the last Chancellor of the Exchequer, to which, as I understood it, the Labour party was still in theory committed.

When we listen to the combined speeches of the shadow Chancellor and the Leader of the Opposition, they seem to amount to more regulation and more tax on businesses—indeed, they confirm the Labour party’s reputation as the anti-business party. The shadow Chancellor has managed to get the Labour party into an extraordinary position for an Opposition—of complete irrelevance: irrelevant at home and irrelevant abroad. The leader of the Labour party asked a good question—“Why would you bring Fred Goodwin back to run the banks?” But why on earth would we bring the shadow Chancellor back to run the British economy?

--- Later in debate ---

[Mr Osborne]

I did not directly mention the meeting at the weekend between the French President and the German Chancellor, but I alluded to it when I said that there were signs of progress, as the meeting was one of those signs. They have now decided to delay the European Council until the end of next week to give them more time to put together a package, the components of which are becoming clear. The timetable that we first identified of the Cannes summit being the last possible point when we can resolve this is now generally accepted. On the hon. Gentleman’s substantive point about international resources, I commend him for his sensible vote in defying the Whip imposed by the shadow Chancellor.

[Ed Balls]

There were some people on your side as well.

[Mr Osborne]

Let me address this. There certainly were some people on my side, and no doubt some of them may ask me about it today. I am very happy to stand up and explain why I think that is wrong, why Britain has been a founding member of the IMF, and why the international institutions like the IMF and the World Bank are absolutely central in trying to get an international response to economic problems. However, there is a big difference between Back-Bench Members of this House deciding to vote against this issue as a matter of conscience and the shadow Chancellor leading the entire Opposition into an official vote against an IMF package that—let us remember this—was supposed to be the crowning achievement of the last Prime Minister’s premiership. When we look back at the last Prime Minister’s premiership, the one thing we say he got right was the London G20 summit, and then the shadow Chancellor leads his party into the Division Lobby against it. That is pathetic.