Eurozone Financial Assistance

Edward Leigh Excerpts

Tuesday 24th May 2011 Commons Chamber

[Kelvin Hopkins (Luton North) (Lab)]

It is a great pleasure to speak in this important debate and to support the motion of the hon. Member for Rochester and Strood (Mark Reckless). I hope very much to have the opportunity to vote for the motion as it stands rather than in amended form.

Today of all days is important because the crisis and contagion in the eurozone is spreading. As reported in the Financial Times and other journals, there are serious problems in Spain, where there is youth unemployment of 41%, and where the economy is in serious crisis, and even in Italy. Those are major economies, not small countries. If we are dragged into a mechanism to save the eurozone even in one of the smaller countries, we will be throwing good money after bad, as the hon. Gentleman said. Bail-outs have been required for Greece and Ireland, and there might be one for Portugal, but those are relatively small countries in EU terms. Spain and Italy are much larger, and bail-outs for them would be prohibitive.

As I have said in the Chamber several times before, it is time to urge the EU to accept the recreation of national currencies for countries that cannot sustain membership of the eurozone. As I and many others have argued, strong currencies derive from strong economies, not the other way around. The Deutschmark was a strong currency because the German economy was strong. Weak economies cannot cope over time when a strong currency is thrust upon them. The best example of that was Argentina, which chose mistakenly to link its currency formally to the US dollar. For 10 years, it struggled, and its economy was almost destroyed before it bailed out and recreated its own currency—not before billions of its dollars had gone abroad. The Argentine economy, which had been one of the strongest on South America, became very weak, simply because it adopted a strong currency, and someone else’s currency at that. Adopting a strong currency that an economy cannot sustain is a foolish decision.

The right to flex a currency as of need is a vital component of economic management. Indeed, at Bretton Woods in the 1940s, it was argued that depreciations and appreciations could be appropriate for different countries, even though a stable exchange rate system was agreed after the second world war.

[Mr Edward Leigh (Gainsborough) (Con)]

Is it not strange that the Government are backing so strongly the candidacy of Madame Lagarde for the position of head of the International Monetary Fund, given that that lady is part of a ruling European elite, and that she is on record as wanting to go on bailing out the euro? Should we not be more independent in supporting a really good, tough candidate for that important post?

[Kelvin Hopkins]

I have not always agreed with our former Prime Minister, but I agreed very strongly with his position on the euro. Of course, my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown) might take a more sensible approach to those things, should he be appointed. I think he is something of an outsider at the moment, but Madame Lagarde has not been appointed yet. Let us hope that he still has a chance of the job.

As the hon. Member for Rochester and Strood said, Britain was wise to stay out of the euro. Because of that, we can flex our currency when needs must. Of course, during and after the crisis, we wisely depreciated our currency. Perhaps a bit more depreciation will help manufacturing and our economy. Countries that have their own currency, such as ours, can also choose their interest rates. Two vital components of any economic management system—the ability to flex the currency and control of interest rates—are given away when countries join a single currency. Even beyond that, there are fiscal policy controls. Countries would do well to retain all the components of economic management if they want to succeed.

When countries do well individually, they can do well collectively. Destroying the economies of EU member states or other countries does not help us in any way. Getting them back into some sort of order by permitting, encouraging or helping them to recreate their currencies, and finding an appropriate parity and interest rate for that currency, so that they can manage their economies for their needs, would raise demand for our goods. The shock absorber effect of different currencies would, over time—a fairly short time, I believe—make the economies of Europe work better singly and collectively. Therefore, the recreation of those currencies is in our interest.