Queen’s Speech

Lord Davies of Stamford Excerpts

Thursday 28th May 2015 Lords Chamber

[Lord Davies of Stamford (Lab)]

My Lords, I will make three introductory remarks and will then say a word about the EU referendum, which has been much discussed today, and about Greece, which has not been mentioned at all.

First, the maiden speech of the noble Baroness, Lady Helic, was absolutely brilliant—one of the best I have heard in three decades in either House—and I congratulate her most warmly. Secondly, all of us throughout the House were delighted to hear of the reconfirmation in her role of the noble Baroness, Lady Anelay. She picked up her very complicated brief very impressively in an extraordinarily rapid time in the last Parliament, and has always displayed the greatest conscientiousness and courtesy in her dealings with every Member of the House, which is deeply appreciated. Thirdly, I second the proposals of the noble Lord, Lord Howell, to set up a permanent international affairs committee in this House. That has of course already been welcomed on all sides of the House.

I think that all of us on this side of the House recognise that the Government have a mandate to go ahead with an EU referendum. Personally, I hope that it can be concluded as quickly as possible: first, to reduce to a minimum the economically damaging uncertainty before it takes place, and secondly, to ensure that if we remain in the Union we can have an effective presidency in 2017, which we certainly would not be able to have if we were conducting a referendum campaign at the same time. However, no one will be under any illusion—and certainly not our negotiating partners on the continent—that the whole of the Government’s policy on this matter is not based on a series of contradictions and self-delusions.

The first contradiction is that the Government are acting in the national interest—they purport to do that—but as we know, the Prime Minister’s policy is just being driven by internal party-political considerations. That is why he changed his mind so dramatically on the referendum in the last Parliament. The Government have conducted a very useful exercise, the balance of competences review, which shows that there is no case at all for a renegotiation. All that is required is a normal pragmatic evolution of the European Union, which in my view would be the most desirable solution.

Secondly, there is a fundamental contradiction, in that the aim is clearly to appease the Eurosceptics. But of course the Eurosceptics cannot be appeased by anything other than our withdrawal from the European Union, and, in my view, the dissolution of the European Union itself will be required to satisfy them. So we are engaged in an exercise which cannot succeed in its intended purpose. The conclusions regarding the tactics to be adopted towards the Eurosceptics as a result of that are obvious, and certainly not the tactics that John Major adopted so disastrously for himself and his party, of which I was then fortunately, or unfortunately, a member.

Thirdly, the most serious contradiction in my view is that the Government say they are embarked on a course designed to change the treaty. However, you cannot negotiate a change in the treaty with other Heads of Government or State or with the President of the European Commission or the European Council for the simple reason that more and more countries have established that there has to be a referendum if there is a change in the treaty. We cannot complain about that. We did the same ourselves under the Europe Act, which I opposed in the previous Parliament.

Nor can you negotiate with an electorate, and you cannot even predict how an electorate are going to react to a negotiation. Surely we all know that. You cannot rely on the opinion polls, as we also know. It is more than likely that even the countries which geographically, politically and psychologically are quite close to us, such as Ireland and Denmark, will react very badly to being told that they have to go to the polls to revise a treaty—it is their treaty as much as ours—simply to help the British Prime Minister with a party-political problem of his own. Therefore, the prospects are not quite as easy or as bright as the Government often say they are.

My advice to the Government is simply, first, to abandon any idea of changing the treaty. In any case, the substantive objective that they have in that context—to get rid of freedom of movement—is the wrong one. Freedom of movement is an enormous asset to this country, as well as to every other member state and citizen of the Union. There are just about as many British people living on the continent elsewhere in the EU as there are EU citizens living here. Hundreds of thousands of young people are benefiting from the Erasmus programme and the educational exchanges. We will begin to regret all these things just a day or two after we abandon them, and we will not be able to get them back. It is a crazy policy.

I have no objection to extending the period of transition for future member states before they qualify for freedom of movement and I have no objection to making it impossible for people to claim out-of-work benefits when they come from other member states and do not have a job in this country, but I do not believe for a moment that you can deny them in-work benefits. You cannot have a situation in which people pay taxes and national insurance contributions alongside other workers in the same workplace but do not get the benefits. That is a sort of apartheid in the workplace, which would be utterly obnoxious to anybody in this country who believes in our traditions of fairness and equity, so it is quite the wrong road to go down.

I think that the Government should concentrate on positive things: completing the single market, getting a proper services directive, establishing a capital markets union—of which of course we must be a part—and getting a proper energy policy. There are lots of good objectives of that kind.

I want to say a few words about Greece. It is said that Greece may be about to default. In my view, that is very likely. It is said that that would be a great and devastating blow—some would say a fatal blow—to the European Union or to the eurozone. I do not believe anything of the kind. Greece is entirely the architect of its own misfortunes. The malaise or curse from which it has suffered is, ironically enough, a curse which was first defined and given a name by Greeks: demagogy. You can read about it in Thucydides—it is all there; it has all happened before. Plato’s The Republic and Aristotle’s Politics are very different works and propose very different solutions but they are both inspired to a large extent by the need to combat the effects of demagogy in 5th-century Athens, as we all recall.

Demagogy consists of politicians offering unrealisable, irresponsible and incompatible policies, and that is exactly what has happened in Greece, although not just in Greece. A lot of people in Latin America have suffered from it, as Argentina currently does. A Government come to power and promise the earth, and then run up debts, which creates a crisis. The crisis then has its own costs. Somebody else comes to power saying, “Don’t worry about the costs. We have a magic solution here. You don’t have to pay for the costs or have any austerity. It’s all going to be fine. Vote for us”. That is exactly what has happened in Greece, and Syriza is a very bad example of the original Greek phenomenon of demagogy.

The bailout programme provided a wonderful opportunity for Greece to address some of its fundamental structural problems, such as overemployment in the public sector and excessive protection in the labour market. Greece was coming through that programme very effectively, as Spain, Portugal and the Republic of Ireland are doing at present. Spain is, I think, the country which is growing fastest in the European Union as we speak. Greece began to grow again last year and unemployment began to fall. Just at that vital moment, Syriza came to power and said. “Don’t worry about all this austerity, vote for us and everything will be fine”. Well, if it were to be fine simply because everybody else signed a cheque for Greece, it would establish the most appalling precedent. That would be a disaster for the European Union. It would be a most perverse action by the European Union, creating negative incentives and a moral hazard that could be extraordinarily damaging to the future of the European Union.

As we know, what actually will happen if Greece defaults is that the ECB will no longer be able to provide liquidity support for Greek banks. As a result, the Greek Government will have to support their banks. They cannot do that in euros—they will not have any and they cannot borrow any—and so will have to impose capital controls and go back to a sort of drachma mark 2. It is almost inconceivable that any sane person in Greece still has an account in Greece in euros, but of course it will always be the small people—the poorer, less sophisticated people—who suffer from these things. Those are the people Syriza, quite dishonestly, pretends that it is trying to support. The Greek Government, if they go on wanting to spend more money and running a primary deficit, as they do, will not be able to borrow that money from anybody in Greece, or outside, and will be monetising their deficit. Therefore, Greece faces the prospect of serious inflation, perhaps hyperinflation, and economic crisis. That will not be the case for the rest of the European Union and I do not believe that there is much of a systemic risk. The exposure of other banks in the EU to Greece is only just over €30 billion and much of that is already provided for. Of course the stress tests which the ECB undertook last year took account of the possibility of a Greek failure. If that comes about, it will be the fault of the Greeks alone. The lesson that will be drawn from it will probably be a very salutary one for all concerned.