Euro Area Crisis: EUC Report

Lord Davies of Oldham Excerpts

Monday 21st May 2012 Lords Chamber

[Lord Davies of Oldham]

My Lords, this has been a fascinating debate. I am sure that when the noble Lord, Lord Harrison, began his work with the committee on this report he scarcely anticipated that we would have quite such a wide-ranging debate. It has ranged from practical solutions for how we might emerge from the difficulties to the cataclysmic perspective that the game is up and we may as well fold up our tents and go home.

There are two dimensions to this debate to which I have the greatest difficulty in responding. I have great difficulty in responding to my noble friend Lord Giddens, not because I do not respect his analysis but because I cannot cope with the situation. He says that we, as politicians, do not have the intellectual machinery or concepts to get ourselves out of these difficulties. That may be so but I assure my noble friend that that will not stop politicians trying.

[Lord Giddens]

I did not mention politicians once. I was talking about intellectuals, saying that we do not have the capability to resolve the issues that face us at the moment. Therefore, it is not surprising that politicians are struggling, too.

--- Later in debate ---

[Lord Davies of Oldham]

I was not going to be excessively critical of intellectuals. I accept what my noble friend said but I translated it to the political because that is what this House is here to do. We are not a debating Chamber; we are the second House of a very significant Parliament in a Europe that is faced with the most colossal difficulties. That is why we have to address ourselves to the issues.

I greatly applaud the work of my noble friend Lord Harrison. When the report was being drafted, things were not quite as critical as they have developed to be over the past two to three months. Nevertheless, my noble friend and his report clearly reflect the difficulties and tensions faced by the committee in producing a response to the great challenge of the crisis in the eurozone.

Let us get one thing absolutely clear. The reason we cannot walk away is that Britain has nowhere else to walk. Robert Chote is the chair of the OBR, in the work of which not just the Chancellor but the Minister in this House invest so much credence. What does he say? He says that we face a catastrophic situation if Greece moves out of the euro; we face catastrophe as far as the eurozone is concerned. The recession will go on for several more years. There will be deflation. Unemployment will rise from 8% to 11%. Therefore, we will be in a situation in which our own people will suffer severely because of this development. That is why the one thing that the British people will not accept—nor do I see any reason why other Europeans should accept it either—is politicians throwing up their hands and saying, “This is beyond us”. We may have limited intellectual concepts to get beyond Keynesianism or monetarism as an economic theory for the future, but we must put together some kind of strategy for improvement. Without that, we renege on our obligations to people.

The noble Lord, Lord Dobbs, says that the people will decide. Let me say that people who have lost trust in their politicians can reach some very dramatic decisions. We possibly see it in Greece at present. What if the British political community also began to reflect that we have no means of protecting our people in this crisis? A total calamity would be visited upon us and we would deserve it. Of course, I respect how difficult these issues are. I know that the Minister will be challenged in his response to this report. However, it is essential that we recognise that we must look for some steps forward.

[Lord Dobbs]

Is it now the policy of the noble Lord’s party to support a referendum at some point on Europe? The other day, I heard an interview with his noble friend Lord Mandelson who said that a referendum might be a good idea, although another of his colleagues said, “I wonder what he meant by that”. At the end of the day, does the noble Lord want the people to decide our fate and the direction of Europe, or should this still be simply a matter for the political elites?

[Lord Davies of Oldham]

I would say, not at the end of this day. We have so much to do before we could even begin to prepare a referendum and the question that that would represent in realistic and proper terms to the British people. I will not rule it out altogether. We are accustomed to referenda in certain circumstances. You cannot talk to the people in terms of “We are giving all power to you for you to take this decision because we as politicians have not got the faintest idea what the question should be or how it should be answered”. That is what I am arguing against.

I am confident of the fact that European politicians will take important steps to make progress out of this situation. What will they do first? Let me be clear, we should not visit upon the Greeks the well constructed animosity that infects all our right-wing press at the present time. The Greeks are such a small fraction of the European economy that they are not a threat to anyone. Their loss is marginal. It is certainly a marginal aspect as far as our exports are concerned. But the Greek withdrawal from the euro would represent not one country having left the euro, it would be a recasting of the nature of the euro. The euro would come rather more closely to some kind of a currency regime from which some could defect at a time. But as to the consequences, Greece would be just the first of the victims. Then the pressures would inevitably be presented on the next weakest currency. We have already got pretty well a checklist of how that succession of activity would take place. It is certainly the case that the Greeks did not create this situation. We should have some respect for a nation which has such a significance in its past for European society. But the Greek withdrawal from the eurozone would create enormous difficulties for all. The contagion would merely spread.

What is to be done in these circumstances? It is clear that we have to play our small part. Because we are not part of the eurozone, we are on the margins of this exercise. We are even more on the margins because the Prime Minister walks out in a huff or presents a veto whenever things do not go right. We are not quite sure what has gone wrong. As the noble Baroness, Lady Williams, indicated, we never got the facts of the basis of such a decision. But the Prime Minister is good at chiding nations from the sidelines, giving good advice and lecturing others while not being conspicuous by his success at home. If these countries are being told to pursue a strategy in which they have to improve their growth prospects, by heavens, the Prime Minister should examine more closely the growth position of the UK economy in its double-dip recession through his and his Chancellor’s actions since they have been in government.

So it is quite clear that we will look to others in Europe to present some dimension of the solution to this position. Does it mean that the Germans will have to make additional sacrifices, which it is quite clear that their chancellor is not prepared at present? That will happen only if the consequences of doing nothing are far worse. That is exactly how they are beginning to look. When this report was drafted only three months ago, this discussion could be conducted in fairly normal political language, but we are close to talking the language of cataclysm at present—and of course it changes the perspective of the Germans on this, not least because, after all, the Germans also need friends. In fact, they need the French, their direct allies who have helped to build the European project, who under Monsieur Hollande are taking a somewhat different view on the next stages.

It is quite clear that the eurozone has to take actions itself. We cannot play a major part. But it is the case that 40% of our exports go to Europe. It establishes the British economy in a weak position, because we are related to the euro countries in those terms; there is no ready alternative. If you ask any of our major companies or anyone else concerned with export trade, they do not turn round and say, “Because the eurozone’s in such trouble, we’re looking forward to such wonderful opportunities to challenge the Chinese and the Indians and others elsewhere in the world”. They do not say that at all. They say that we should do something about sustaining the most crucial market that we have—the eurozone countries.

I am quite sure that the Minister’s response to this debate will be expressed in very different terms to mine, but I hope that at least what I have done for him is to help to disperse the rhetoric so that we can concentrate on what practical politicians will have to do to get us out of this situation.