Loans to Ireland Bill

Lord Darling of Roulanish Excerpts

Wednesday 15th December 2010 Commons Chamber

[Mr Alistair Darling (Edinburgh South West) (Lab)]

I agree with the hon. Member for Chichester (Mr Tyrie) that we should be concerned about what is being done within Europe not only to deal with the immediate crisis in Ireland but in relation to the other problems that I believe will arise during the course of next year. The piecemeal approach that Europe has adopted, certainly in the past two or three years, has got to stop. I shall return to that point in the short time that I have available.

I support the Bill and agree with much of what the Chancellor has said. He may feel that that is of absolutely no comfort to him given what some hon. Members sitting behind him have to say. He is absolutely right that because of our interests in Ireland—particularly the interests of the British banks in the Republic of Ireland and the Republic’s banks’ interests in this country—we should be involved in any restructuring discussions. That is very important to us.

Before I deal with the wider problems, I wish to deal with the funding of the rescue, which has been the subject of the debate this afternoon. As the Chancellor has said, we are funding that rescue through the IMF, which we ultimately guarantee, and through a direct loan from the United Kingdom. We obviously hope that that money will be repaid in full, but there is a contingent liability. We are not part of the eurozone fund, and on the weekend of 9 May I spent many hours resisting every attempt from just about every quarter to get us to stand behind the euro. I did not think that was right for us.

We are also making a contribution, of course, through the European financial stability mechanism. That was the subject of a lot of discussion at the meeting of 9 May. I went to Brussels that weekend with no enthusiasm whatever. We had lost the election, but this country was in the unusual position that there was not a Government in place by the Friday, which was the normal situation over the past few decades. Frankly, I had no option but to go, because not to have done so would have been to empty-chair the UK, which would have been quite wrong. I spoke to the right hon. Member for Twickenham (Vince Cable) and the Chancellor, because I felt it appropriate to do so. I thought that in all probability they would both be in office within a couple of days.

I have to remind the House of the circumstances of that weekend. We were meeting at a time of crisis. There was a real sense that the markets were about to have a go at Portugal and Spain, and there is a sense of déjà vu about that, because we are back in that position now. In all probability, the IMF was going to make a loan. There had been a lot of discussions, prompted by the United States, urging Europe to do something about the growing crisis, yet nothing had happened throughout January, February, March and April. It took that emergency meeting in May, when we had to put together a rescue package to persuade the European Central Bank to start buying bonds. That was the critical decision taken that weekend. If it had not bought bonds, there would have been a real problem. That was why we were faced with the situation that we were.

I discussed with the Chancellor what we should do about the financial stability mechanism. He had his reservations and stated very clearly that he was against deploying it, and he asked me whether I should abstain, recognising that the decision was to be taken by qualified majority voting. Both of us recognised, I think, that if we had abstained, the proposal would still have gone through, because everybody else in the room wanted the mechanism to be deployed. I found myself in exactly the same position that he did just a few weeks ago when he was being asked to contribute. He made it clear in a statement to the House on 22 November that he did not believe we should make that commitment, but said:

“However, it operates according to qualified majority voting and so we cannot stop it being used, and to exercise that vote at this time would, I judge, be very disruptive.”—[Official Report, 22 November 2010; Vol. 519, c. 39.]

That was exactly the situation in which I found myself in May, which was why I agreed to go along with the proposal.

However, I have to say that that fund was not used at all when it came to the bail-out of Greece. That was entirely from the eurozone fund that was set up. Obviously I had left office by then and was not part of the discussions, but that is the simple fact of the matter. Once again, Europe was meeting in crisis, and we had to get a package of £500 billion together to get the ECB to meet. Otherwise, it would have done absolutely nothing.

[Sajid Javid]

The shadow Chancellor made the rather incredible statement in his opening remarks that he believes that Ireland’s euro membership has absolutely nothing to do with the predicament in which it finds itself. Does the right hon. Gentleman agree?

[Mr Darling]

The circumstances in which Ireland finds itself are complex, but there is no doubt that one problem is that a common interest rate right across Europe is perhaps inappropriate for an economy that is rapidly investing in an asset bubble. However, I do not have the same phobia about the euro that many Conservative Members still have, 20 years on.

[Mr Cash]

rose—

[Mr Darling]

Talking of which, I give way to the phobic-in-chief.

[Mr Cash]

I am extremely grateful. Did the right hon. Gentleman take legal advice on whether, as I said at the time, the use of the financial stability mechanism was an unlawful deal? Article 122 of the treaty on the functioning of the European Union deals with natural disasters, energy supplies and so on, and it has absolutely nothing to do with financial mistakes or misjudgments. Really, the whole thing should never have gone through, and he should have repudiated it on those grounds.

[Mr Darling]

Yes, but as I said earlier, because of QMV, the deal would have gone through anyway. I also do not agree with the hon. Gentleman’s analysis or that the legal position was that clear-cut.

[Mr James Clappison (Hertsmere) (Con)]

Will the right hon. Gentleman give way on that point?

[Mr Darling]

No—I will not do so because of the time constraints.

I agree with many hon. Members that Europe urgently needs a robust and workable rescue mechanism. We cannot wait until 2013, which brings me to my second main point.

As I have said, I am concerned about the piecemeal way in which Europe as a whole, and the eurozone in particular, address the problems that they face. Even today, there is speculation that the credit rating agencies might revise Spain’s status, which would be damaging to that country and to the euro. However, the approach that has been taken so far, which fails to recognise that the single currency involves 16 member states and 16 Treasuries, will inherently be under stress in times such as these. We are simply storing up problems for the future.

Germany must recognise that if it wants to keep the single currency, which is important to it economically and politically, there are consequences in respect of transfer payments to help countries that are in difficulty. I also believe that simply telling those peripheral countries that the only remedy lies in austerity programmes that developed countries might baulk at implementing, runs the risk of them—far from being able to repay or service loans—finding themselves deeper and deeper in the mire. The IMF has discussed that problem. When Ministers in different parts of Europe are asked privately where all the growth will come from—for Greece, Ireland, Spain and Portugal—they say, “We don’t know. We can’t be certain.”

Consider the news today. There is rising unemployment. Most of the job losses are in the public sector, and there is precious little sign that the private sector is taking its place. We should be concerned about the “austerity first” programmes that are being imposed across Europe. The dominant political thought at the moment is that if Government’s cut enough, they will get through to salvation. That was tried in the 1920s and early 1930s, and it did not work.

I believe that countries that are in difficulty should look to mend their own houses and to take difficult and controversial steps, but we need to be watchful that we do not get into a situation in which those countries have no way out. If that happens, their consumer and business confidence will fall. Whom do they export to if other countries are shutting down?

The need for some sort of mechanism to address the problems that are inherent in the euro is absolutely urgent. Those problems were simply glossed over 10 or 15 years ago. Let no one think that this is a matter only for the eurozone. As many hon. Members have said time and again, the problem affects us as well, because we are so integrated with Europe and because it is such a big trading partner. Parliament and Ministers need to address the question of such a mechanism. Frankly, we cannot afford to carry on with the current piecemeal approach, which I believe threatens our recovery as much as that of other European countries.