EU: Financial Stability and Economic Growth

Lord Bilimoria Excerpts

Thursday 3rd November 2011 Lords Chamber

[Lord Bilimoria]

My Lords, last week, the German Chancellor Angela Merkel warned us that if the euro falls there will be war in Europe. As the noble Lord, Lord Giddens, said, the repercussions would be catastrophic. There is no question that, after World War II, the European Union has been fundamental in preventing conflict among the EU states over the past six decades. In terms of economic stability and growth in the good times, the EU has been fantastic. But underlying the whole concept of the European Union is the question of where you draw the line. How far is too far? We have benefited from a zone of free people and goods, and that is fantastic. I am all for it, and I thank the noble Lord, Lord Newby, for initiating this debate. As he said, almost 50 per cent of our trade is with European Union countries. But one of the best decisions this country made was not to join the euro. In the good times, the euro has been very good. In the bad times, as we have seen, the failure is terrible.

It is illogical to expect that you have the same currency and interest rates for countries that are never—ever—going to be in sync at any one time. How can you have that? Look at Germany at the one extreme and Greece at the other, let alone governance of these countries. How can the Chancellor, George Osborne, possibly suggest increased fiscal integration among the eurozone countries? I cannot see how that can work. Increased fiscal integration is dependent on political and emotional integration, and a buy-in by all the citizens of each country. The last person to achieve integration in Europe was the Emperor Charlemagne in the eighth century. On the other hand, in a country like India where you have a truly federal state, you can have full integration—and the states in India are far more diverse than the countries in Europe. Then you can have a central government. However, in Europe, fiscal integration without political or emotional integration is a pipe dream. It has not happened in 60 years, and it is not going to happen.

Therefore, we have got to accept that the euro was a step too far. Our forays into political integration with the European Union have resulted in a system in which we have MEPs who have absolutely no connection with their constituents, who in turn have no idea who they are. There are constant complaints in our country about the bureaucracy and red tape that come out of Brussels, particular in the areas of business and employment law.

I have spoken before about the domino effect that has taken place in the past five years: of the sub-prime crisis leading to the credit crunch, leading to the financial crisis, leading to the great recession, leading to the sovereign debt crisis, and leading to the eurozone crisis. We are at a very precarious time in history. The people who say that Greece merely represents 0.5 per cent of the world's economy, or 3 per cent of the eurozone, miss the point: it only takes half a spark to start a whole fire.

What are the Government's plans to deal with the possible disintegration of the euro and the eurozone? The Government refuse to have a plan B where the economy is concerned, but I credit them for having sent out the right signals to the global financial markets by showing that we are willing to cut our GDP/public expenditure from 50 per cent to 40 per cent. That is good, but what are the plans for a euro-disaster scenario?

Does the Minister agree that Britain should take a leadership role to resolve this disaster that lies ahead of us? Bailing out Greece—and other countries; we have heard about Italy, with €1.9 trillion of debt—the measures have gone from a sticking plaster to a bandage last week, and now Greece has admitted itself into the operating theatre. We are only prolonging the inevitable. Can Britain play a leadership role with this doomsday scenario possibly taking place, rather than being told by President Sarkozy to stay out of it? Why does it take the noble Lord, Lord Wolfson, to offer a prize for a solution to a country disengaging from the euro? Does that mean that the Government do not know how this should happen? In my role as the president of the UK India Business Council, I always say that we are so perfectly positioned as a gateway to Europe.

What are the Government doing to deal with the negative impact of hedge funds and people taking advantage of credit default swaps, accentuating the downward spiral scenario? Everyone talks about the ECB saving Europe but look at the EFSF, which has not even been able to raise €3 billion out of the €1 trillion it is meant to. Gary Jenkins of Evolution Securities put it really well when he said:

“The vehicle that's supposed to borrow on behalf of the countries that can't borrow, can't borrow”.

With regards to a referendum, the question should be not about whether we are in or out of Europe, but about how countries are in Europe and on what terms. Under the worst of circumstances, where the eurozone could disintegrate, we now have an opportunity to redraw almost from scratch what the European Union should be: a union of countries with democratic principles, with a rule of law and with shared values. Then we will have a European Union with peace, stability and growth.