Greece

Lord Ashton of Hyde Excerpts

Monday 29th June 2015 Lords Chamber

[Lord Ashton of Hyde (Con)]

My Lords, with the leave of the House, I will repeat a Statement made a few minute ago by my right honourable friend the Chancellor of the Exchequer in another place:

“Mr Speaker, let me report to the House on the latest developments in the financial crisis in Greece, how they might affect British citizens and how we protect our economic security at this uncertain time.

The developments over the weekend have been well reported. Greece’s financial assistance programme is due to expire tomorrow. After tense negotiations last week between the Greek Government and their eurozone partners, it looked likely that a deal to extend that programme would be agreed. On Friday, however, the Greek PM suddenly announced that there will be a referendum on 5 July on the terms of that programme extension and that he will be recommending that the Greek people vote no.

On Saturday the eurozone Finance Ministers confirmed that, as a result of this unexpected move, negotiations were at an end and the programme would expire. Yesterday the European Central Bank said that without a programme it could not extend the emergency liquidity assistance that is the life support of the Greek banking system. Last night, clearly under pressure, the Greek Government announced that banks would not open today and capital controls would be introduced.

There is considerable uncertainty about what happens next. I have spoken over the last 48 hours to fellow Finance Ministers, the chair of the eurogroup and the head of the IMF. This lunchtime, as we just heard, the PM chaired a meeting attended by the Governor of the Bank of England, myself, the Foreign Secretary and others to co-ordinate our response. Britain’s attitude to the developing Greek crisis is clear: we hope for the best but we prepare for the worst.

Let me address some immediate issues that will concern people. First, our view on the overall state of the relationship between Greece and its fellow eurozone members is that, whether or not Greece should ever have joined the euro, it is now part of that single currency and an exit will be traumatic. It was the Greek Government’s decision to hold a referendum that was the immediate trigger for the events over the weekend and the bank closures today.

We should plan on the assumption that this referendum will effectively be a choice for the Greek people about whether their country now leaves the euro. This is a matter for the Greek people to decide, and we respect their democratic right to decide their country’s future. We also respect the right of the eurozone to set conditions of membership. That remorseless logic of integration is one of the reasons we did not join the euro and we do not want to in the future.

Secondly, there is the impact of the current events on the stability of the financial system, in the UK and across Europe. Related to that is the position of the Greek banks here in the UK. This Greek crisis has been with us in one form or another for five years. It has been one of the biggest external economic risks to the British economy, and the situation today shows that these risks remain. I do not think that anyone should underestimate the impact that a Greek exit from the euro would have on the European economy, and the knock-on effects on us. That is why I have consistently agreed that the best way to protect ourselves from these risks is to get our own house in order.

Of course, markets anticipate some of these risks. The private sector exposures to Greek banks and the Greek economy are far lower than they were, say, three years ago, so the financial market reaction today has been relatively contained. Stock prices on European exchanges have fallen by between 2% and 5% and Greek bond yields have increased by around 400 basis points to over 14%, but bond spreads in other eurozone economies have stayed broadly steady.

The eurozone authorities have made clear that they,

“stand ready to do whatever is necessary to ensure financial stability of the euro area”,

and we welcome that commitment to the currency. Equally, the British Government and the Bank of England stand ready to ensure our financial stability in the UK. The four largest Greek banks—Alpha Bank, Euro Bank, National Bank of Greece and Piraeus—all have branches here. Their UK balance sheets are small; between them, their deposits total less than £225 million. The resolution and supervision of these branches is the responsibility of the Greek and EU authorities, while the protection of depositors is solely the responsibility of the Greek authorities. All four branches are open today. There is one Greek bank with a subsidiary in the UK, Alpha Bank. This is a separate, standalone entity from its parent bank. It is small, with assets of slightly over £500 million. It is regulated by the Bank of England, and customers can be assured that their deposits are covered by the UK’s Financial Services Compensation Scheme.

Thirdly, there are 40,000 British residents in Greece, including 6,000 receiving payments from the Department for Work and Pensions and around 300 receiving public sector pension payments. The Greek Government have announced a bank holiday in Greece, lasting at least until after the conclusion of the referendum on 5 July, and restrictions on withdrawals from ATMs. Withdrawals will be limited to €60 per day per account for Greek accounts. The Greek bank accounts of those British residents are subject to these restrictions. Their UK bank accounts are not affected.

International payments into Greece are exempt from the restrictions that the Greek authorities have placed on the banking system. That means that UK government payments, including state pension and public service pension payments, should be permitted, and I can confirm that those payments will continue to be made in the usual way. However, the situation remains fast-moving and uncertain; we will keep it under review and I recognise that people may be concerned.

I have asked the Department for Work and Pensions and public service pension administrators to attempt to contact people who draw a British state or public sector pension from a Greek bank account. Those people will be helped to switch these payments to a non-Greek bank account if they wish.

Fourthly, there are on average 150,000 British tourists per week in Greece in the month of July. For the time being, the Greek Government have announced that, as usual, tourists will be able to withdraw up to €600 on cards that have been issued outside Greece. However, the foreign ministry could impose limits in future, and the availability of ATMs that are stocked with cash may get increasingly patchy. I remind people that credit and debit cards are of course accepted only at the discretion of the business that you are paying.

As a result of these limited and potentially unreliable banking services, I confirm that, as I speak, the Foreign Office is updating its travel advice. We recommend that travellers should take sufficient euros in cash to cover the duration of their stay, emergencies, unforeseen circumstances and any unexpected delays. Obviously travellers should be careful and take sensible precautions against theft. The full advice is available from gov.uk, and travellers should check this regularly.

Lastly, we are taking steps to help firms doing business with Greece. There are restrictions on the settlement of payments being transferred out of the Greek banking system. The department for business is today publishing guidance for businesses that may be affected. In addition, I can announce that HMRC’s Time to Pay service will be available to help to give breathing space to businesses that are experiencing cash-flow difficulties as a result of events in Greece.

So let me be clear: British pensioners are being paid as normal, British businesses trading with Greece will be supported and British holidaymakers will receive the advice and help that they need. In a rapidly changing situation, I want people to know that Britain is prepared.

To conclude, it is vital now that the Government and people of Greece act to resolve the current uncertainty, and ensure economic and financial stability across Europe. Five years ago we came to office in the first flush of the Greek crisis. At the time, Britain too was dangerously exposed and on the brink. Since then, with the British people, we have worked hard to repair our economy and ensure that we can deal with risks like this from abroad. If ever we needed a reminder of why we need to continue working through our plan to deliver economic security at home, we have it today. I will take further steps to secure our country’s future in the Budget next week”.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, watching the events in Greece is like watching a car crash in slow motion, and we on these Benches hope very much that steps will be taken over the coming days and weeks to avert what is undoubtedly a lose-lose outcome for essentially everyone involved. I have a few questions for the Minister.

Everyone in the House will be concerned for British citizens who are travelling in Greece. For tourists, the advice is to carry cash. I understand that that seems to be the most obvious solution, but I do not think that anyone would recommend it for themselves or their family because it exposes one to extraordinary risk. What conversations are taking place with our consular officials in Greece to see if they can provide some better advice, and if this continues beyond a few days, on looking to work with financial organisations? American Express and Thomas Cook are organisations that come to mind in terms of going back to some of the older methods of payment like travellers’ cheques, which were used before the days of credit cards.

Can the Minister give an assurance that the UK banks have passed stress tests which look not just at the immediate fall-out of the impact on the Greek banks, but on banks in other parts of the eurozone which might be the victims of knock-on effects by predatory financial traders, and indeed of the normal actions of the market looking for other weak spots? Can he also assure me that conversations have been held with the bank regulators? At times of volatility, and this crisis could lead to one, there is an obvious opportunity for misbehaviour in the financial system. We have another burgeoning crisis in the US swap market and one would hate to see those bad behaviours use the opportunity to take advantage of the volatility that may result from this crisis.

Does the Minister agree with the Financial Times that this,

“is a soluble problem merely cloaked in an aura of impossibility”?

Although the British Government have pointed out that they are not directly involved because they are not members of the eurozone, surely this is the time for the Government to make strenuous efforts and urge all parties back to the table. Does he not also agree that this crisis in Greece offers up some broader lessons, one of which is that EU Ministers and Governments will not put up with endless game playing? As a consequence, as he looks at the EU’s own negotiations on reform, will he ask the Government to make sure that they do not focus on synthetic issues—quite frankly, like whether there are phrases about ever-closer union—but on real issues such as the standing of non-eurozone countries and whether they are on a par with others? Perhaps he will speak to members of his own Cabinet who think that playing with a no vote in a referendum is a way to strengthen Britain’s negotiating hand. That is the kind of childish behaviour that we have just seen get Greece into extraordinary difficulties. This is a time when everyone needs to act like a grown-up.

[Lord Ashton of Hyde]

My Lords, I thank the noble Lord and the noble Baroness for their comments. I shall start with the initial remarks of the noble Lord, Lord Davies. I shall just refer back to what the Chancellor said, because I do not see any part of the Statement where he compared this country to Greece. He said:

“If ever we needed a reminder of why we need to continue working through our plan to deliver economic security at home”.

Economic security at home is extremely important to deal not only with the obvious problems in Greece, which are not the same as we have here, but the other, unexpected problems that occur in the worldwide economy.

The noble Lord and the noble Baroness asked about British citizens. Of course, that is one of the most important issues as far as we are concerned. Greece is a big tourist destination, with 150,000 tourists normally going there in July. The Foreign Office updated its information both last night and again, I think, within the last hour. All British citizens should look at the information from the Foreign Office on the GOV.UK website because the situation is developing fast and that is the best way to get up-to-date information. The Foreign Office has been dealing with the Greek authorities and I can answer the noble Lord opposite directly: it has undertaken contingency plans to make sure that if the situation gets worse, adequate support will be provided for UK citizens in Greece and it will ensure that adequate resources are available.

I was asked what structures are in place in this country to monitor the situation. The Bank of England has primary responsibility for stability and is looking at this on a daily basis. The number of firms that deal with Greece is relatively minimal. The financial sector has reduced dramatically over recent months, with the latest figures for March showing that exposure levels were approaching a quarter of what they were in December last year. By way of comparison, they comprise less than 2% of the UK’s financial exposure to France. Direct trade and investment links are also minimal, with only 0.6% of total UK goods and services exports going to Greece—worth around £2.8 billion in 2013—while only $1.1 billion of Greek foreign direct investment stock comes from the UK. In fact, of all the periphery euro area economies, Greece receives the smallest amount of UK outward foreign direct investment.

I agree with the noble Lord opposite that a negotiated settlement is preferable. I also agree that the Government here will do whatever they can to help in that. They have been in touch with European institutions, but, obviously, as we are not part of the eurozone, we have less influence in this matter. But I agree with him that a negotiated settlement would be best. I have to bear in mind what the president of the IMF said: it is time to have some adults in the room when they get to negotiations.

The noble Baroness, Lady Kramer, asked about cash, which obviously is a risk. I think that it is sensible to take more cash than you would normally take. One could also take more than one card, if one has them. Of course, the problem is that those cards are no good if the banking system is not working and the ATMs have run out of cash—and I think that they will run out of cash fairly soon. She mentioned travellers’ cheques. Again, they are only any good if the banking system is open and working. Hotels, I think, fairly rapidly run out of cash.

The noble Baroness asked about the stress tests and the banks in this country. I cannot answer directly whether they involved a specific reference to a situation like Greece, but all our banks have passed their stress tests. These take into account instability in the economy, which is one of the tests—and the banks passed. There is much less contagion risk in the periphery than there was a few years ago. Countries such as Spain and Italy have reduced their exposure to Greece as well—it is not just this country. As for the discussions with the bank regulator, the Bank of England—the regulator in this country—has talked to other European institutions.

The noble Baroness said that this was a soluble problem. I think it is soluble with good will on both sides, but it will be very difficult. The performance of some of the players has made that more difficult, to be frank. On reform generally and the effect that this will have on our negotiations with the EU, I do not agree that ever closer union is a synthetic issue. When you have a eurozone, ever closer union is an absolutely important part of that. That is a real issue we have to address, and the Prime Minister is determined to do so.

--- Later in debate ---

[Lord Ashton of Hyde]

My Lords, I am not sure that it is fundamentally flawed. The key is that the participants in the eurozone have the right economic fundamentals that allow them to go into it and play their part. As for exit, that is up to the Greeks. It is they who are having a referendum. It is not for us to tell them which way to vote. I absolutely agree with my noble friend that if they decide to exit by dint of the referendum, which is their democratic right, we should do all that we can to make it orderly.

[Lord McFall of Alcluith (Lab)]

My Lords, it is clear that a Greek exit would provide an existential threat to the whole European monetary and economic framework, with knock-on effects geopolitically and also for the United Kingdom. As Angela Merkel said, if we lose the ability to compromise, we will lose Europe. Even at this late stage, is it not incumbent on the UK Government to ensure that their voice is heard and that a compromise is agreed with a degree of debt write-down and concomitant structural changes in Greece itself? That is still a possibility and every effort has to be made to ensure that before the weekend.

[Lord Ashton of Hyde]

I agree that we should do what we can, but it is fundamentally a eurozone problem. There is a limited amount we can do. In terms of the bailout, we would not be on the hook for that. I agree that we should do what we can. Of course, the former Leader of this House is hard at work in Europe, even as we speak.

[Lord Higgins (Con)]

My Lords, in the present confused situation, only one thing is clear. It is inconceivable that Greece will become competitive and achieve economic recovery at the present exchange rate. Therefore it will be condemned to endless austerity, abortive negotiations and financial crisis until such time as it leaves the euro. My noble friend’s Statement refers to an exit by Greece as being traumatic. The important, thing, therefore, is that we should do everything we possibly can to make it happen in an orderly way, rather than in a traumatic way, where other European countries are not taking action because they believe that it is fundamental that Greece remains in. It is not going to remain in; sooner or later, it is coming out. Therefore it is very important that we should work together with other European countries to achieve a sensible exit.

In particular it needs to be made clear that, if there is an exit of Greece from the eurozone, it does not mean that Greece exits from the European Union. From a political point of view, it is very important indeed that it should not do so. At the moment, however, I fear that we are underestimating our interest in this matter. We are of course already contributing in part to the bailout through our contribution to the IMF, and it is obviously extremely important as far as our export markets to Europe and so on are concerned. So we need to work with the other members in the European Union to seek to achieve a resolution to this crisis that is long term. That can only be if Greece exits the euro.

[Lord Ashton of Hyde]

My noble friend is obviously right. I would not swap economics with him. I accept that there are difficulties if your exchange rate is constrained by the euro and your interest rate policy is determined by the euro authorities. Ultimately, that is why it would be traumatic, as my right honourable friend said, if they leave—and it will be traumatic for individual Greeks, for whom we should feel a great deal of sympathy.

As far as the IMF is concerned, it is true that if Greece does not pay back its loan, it will go into arrears. There are contingency funds within the IMF which may cope with that. Ultimately, however, if that was the case, we would have about a 15% share of that. I agree with my noble friend that if we get to the stage of Greece leaving the euro, we should do all we can to help. I note that on Twitter today, President Juncker has said that, in his view, if Greece leaves the eurozone it will mean that it will be leaving the European Union.

[Lord Pearson of Rannoch (UKIP)]

My Lords, does the noble Lord agree that it is strange that the Greek people, and indeed the Portuguese and the Spanish, blame their problems on austerity, without seeming to realise that that is caused entirely by the ill-fated project of European integration and its euro, which they think they want to keep? Do the Government agree that, as other noble Lords have suggested, the Greek people’s best way out of the cruel euro trap is to leave it, devalue and gradually rebuild their economy? Would it not be nice if the Greeks were to succeed in this task and were eventually followed by the Portuguese, the Spanish and perhaps even the French? That might start to break up the whole euro project and, indeed, the project of European integration itself, which is doing so much damage to Europe.

[Lord Ashton of Hyde]

The noble Lord may be surprised to know that the Government do not agree with that analysis. I know that he has certain views. Austerity per se is not the cause only of the Greeks’ predicament. It has been a long time coming, and other European countries have dealt with it in a possibly more effective way. Austerity alone is not the answer, but nor is leaving the euro. We need to help the Greeks negotiate a position where they can face the future with a bit more optimism, and I am sure that the noble Lord will join me in that.

[Baroness Falkner of Margravine (LD)]

The noble Lord has accepted that the United Kingdom is exposed through the IMF to a Greek default or Greece being in arrears. He has not given us a figure, but the Times this morning said that Greek indebtedness to the IMF was to the tune of about €21 billion. Will he tell the House what specifically the United Kingdom exposure would be in that regard?

[Lord Ashton of Hyde]

I do not have the exact total number, but I am told that it is about 15% to the IMF.

[Lord Davies of Stamford (Lab)]

Would it not be a good idea for the Government, when they refer to ever closer union, to quote the phrase correctly? It is the ever closer union of peoples. It has never been a legal or an institutional matter. On Greece, I am sure that the Government have given some thought to what follows, or what might follow, from the referendum on Sunday. Presumably, if the vote is no, Greece will continue down the tube of bankruptcy, and no doubt leave the euro, have high inflation and so forth. If the vote is yes, will the package, which was so petulantly rejected by Mr Tsipras the other day, be revived and be on offer to a new Greek Government? Will our Government use their influence with our eurozone partners and the IMF to urge them to adopt that cause?

[Lord Ashton of Hyde]

My Lords, I do not think that the package is a matter for this Government. We would certainly take into account what would happen after the referendum, which of course is a Greek choice, but it is for the eurozone to decide what package is given to its members.

As for the ever closer union of peoples, the point is that when you have one currency, you need to have closer political union to make that one currency work. If you do not have that, you end up having some of the problems that we are seeing.

[Lord Forsyth of Drumlean (Con)]

My Lords, given that the German Finance Minister only a month ago suggested that a referendum on the package might be appropriate, is it really acceptable that the package should be withdrawn the moment the Greek Government announce that they are going to have a referendum on whether the people should accept it? What exactly are the Greek people voting on if the package has been snatched away? When the Minister refers to the loan to the IMF being in arrears, will he explain the difference between being in arrears and being in default?

[Lord Ashton of Hyde]

As regards the arrears, I was merely repeating the official nomenclature of the IMF. I would not comment on the precise meaning of the IMF vocabulary, but it is true that it refers to being in arrears. If that was the case, Greece would join Zimabwe, Somalia and the Sudan. On the referendum, the negotiations are coming to an end because, despite what the German Finance Minister said, if you are to have a sensible negotiation, you need to have willingness on both sides to compromise. Walking out instead of taking the decisions that are needed, and turning around without any warning and instituting a referendum, is not the way to get proper negotiations and to achieve success.

[Lord Lea of Crondall (Lab)]

My Lords, is not one of the difficulties of the analysis that people assume that something follows on from having a referendum, which of course must be nonsense? It is not a logically connected piece of analysis. There can be all sorts of scenarios from where we are now, but Angela Merkel has said that the referendum question is simply, “Do you want the euro? If so, vote yes. If you want the drachma, vote no”. Can it be as simple as that? Are there not a number of scenarios that could follow, and should we not be thinking through a number of them, otherwise the schizophrenia in this debate about whether a referendum is a bright idea has not been followed up by thinking through the policy scenarios?

Montenegro is just up the road from Greece. It is a member of the United Nations and a singing and dancing country. It uses the euro without permission from Frankfurt. It is not obvious to me exactly what the connection is between the way the referendum is posed and the scenarios that follow.

[Lord Ashton of Hyde]

I can see the noble Lord’s problem, but I do not think that it is a problem for the UK Government. The referendum was instituted by Greece and it is up to them what the question should be, what they are trying to address and why they are trying to have one. I completely agree with the noble Lord that there are many scenarios resulting from that. The Treasury, the Government, the Bank of England and the Foreign Office are looking at this and working out contingency plans on a daily basis.

[Lord Tugendhat (Con)]

My Lords, the Minister said that the British Government would be preparing for the worst. I think it is quite widely thought that the worst that might come quite quickly is a humanitarian crisis within Greece. Once no cash is circulating, particularly in an economy that has such a substantial cash sector as in Greece, the difficulties for people in getting food and basic services will become very immediate. Are the British Government going to play a role, should that be required, in any EU humanitarian effort to mitigate suffering in Greece?

[Lord Ashton of Hyde]

My Lords, I agree with my noble friend that in preparing for the worst—I alluded earlier to the sufferings of the Greek people—a humanitarian crisis would be very serious and possible. I am afraid that I am not in a position to commit today on how we would help in that situation. I would like to, but I just do not have the knowledge to do so, I am afraid.

[Lord Berkeley (Lab)]

My Lords, the Minister said that the Foreign Office was updating its advice to travellers to Greece hourly, daily or something, which clearly is welcome. For humanitarian reasons and for the sake of people’s holidays, clearly we do not want to discourage people from going to Greece, but surely the only safe advice at a time when the banks are shutting and credit cards may not work is for people to take cash, probably in euros but any hard currency would do. Is that not the best advice to give people, rather than saying, “Well, you might be able to go to a bank or you might not?”, or anything else?

[Lord Ashton of Hyde]

My Lords, I have not checked the latest advice. I have been informed that it was updated last night and will be re-updated today. I think that is exactly what the advice said.

[Lord Stoddart of Swindon (Ind Lab)]

My Lords, are we not just kidding ourselves about the real situation? Does the noble Lord not agree that the eurozone is fundamentally flawed and has been so right from the beginning? The grown-ups among us recognised that when we opposed going into what was to be a flawed system. Is it not true that without the fiscal and social power, together with the monetary policy, the eurozone simply cannot work? The idea that it could work, particularly with the membership of Greece, was always absurd.

[Lord Ashton of Hyde]

My Lords, the Government do not believe that the eurozone is fundamentally flawed as long as its members have the right economic position when they go in and go in at the right exchange rate. The euro institutions’ power is adequate as long as the members go in at the right time and with the right criteria. I accept that there are different views on this, but the countries in the eurozone are varied. Greece may well leave—I do not know; it is up to the Greek people—but just because one country on the periphery leaves does not necessarily mean that the eurozone is fundamentally flawed.

[Lord Empey (UUP)]

Does the Minister agree that politics brought the Greek people into the eurozone and that politics will be deployed to keep them in it as the week goes on? Will that not mean that the misery that they suffer continues? As the noble Lord, Lord Davies of Stamford, said, what happens if the Greek people vote yes when their Government recommended no? What policy can we expect to be implemented following such a decision?

[Lord Ashton of Hyde]

I completely agree that politics is very important in all these things, along with the economic arguments. Politics demands that all people in positions of power take decisions that are not just in the short-term interests of their political persuasion but in the long-term interests of the Greek people.

[Lord Marlesford (Con)]

My Lords, it looks inevitable and is probably desirable for the euro’s sake that Greece leaves the euro area. Does the Minister agree that it is very important that Greece stays in the EU, which is a more important organisation of longer standing than the euro and should be much more durable? Does he agree that Greece should not invent some Mickey Mouse currency such as a new drachma, which would not fulfil the functions of money—store of value, unit of account and medium of exchange—but should instead continue to use the euro? As the noble Lord, Lord Lea, said, a country does not necessarily have to be in the euro area to use the currency. It has been done with the dollar in South America. Tourists, who are so important to Greece, could use travellers’ cheques. Hotels and so on do not have to cash them; they can accept them and keep them. As long as they have been issued by a reputable outside bank, they are as good as cash for them.

[Lord Ashton of Hyde]

My Lords, I am not an economist, but I accept that it is theoretically possible to use other countries’ currencies. The problem is that a country does not have control over its currency if it does that. It is not up to me or to the UK Government to decide which currency Greece should use in the event that it leaves the euro. That will be up to the Greek Government.

[Lord Lamont of Lerwick (Con)]

My Lords, has the Government’s policy on the euro changed dramatically—