Capital Markets Union: A Welcome Start (EUC Report)

Lord Dykes Excerpts

Thursday 4th February 2016 Lords Chamber

[Lord Dykes (Non-Afl)]

My Lords, I am not so sure that the noble Baroness, Lady Falkner of Margravine, will actually get an answer to the question she has just posed in time for the onset of the referendum campaign and the declaration from the European Council negotiations, but I hope she will. I hope the Government will be able to respond because it is a very pertinent question.

Despite the fact that it has taken a long time for this debate to be held—I agree with the complaints about that—I add my thanks to the noble Lord, Lord Harrison, for opening this debate and for having been such a successful chairman of this sub-committee. I do not want to embarrass him but I am reminded of that famous joke about a human cannonball who was injured—not seriously, I hasten to add—in a circus in Britain some years ago, and the ringmaster wrung his hands in panic and said that it would take him years to find another man of the same calibre. We thank the noble Lord, Lord Harrison, for having been such an excellent chairman of this committee. In this case there is another person of the same calibre—in this case a woman—namely the noble Baroness, Lady Falkner of Margravine, so we welcome her and wish her well in this committee.

It is not an easy task to promote this document and these recommendations because the timetable is long, and that is likely to mean that it is going to be depressing as well, but we have to really press hard, particularly with our natural authority as one of the leading marketplaces of the European Union and the strength of the City of London, where as we know the biggest dealers in the euro are found. It has to be pressed very hard and I hope the Government will do so, perhaps in contrast to their rather restricted enthusiasm about being an integrated member of the single market syndrome for financial markets as we are for the single market in physical products. They are not so keen on other aspects of the European Union membership obligations that we have in respect of the items that have been enunciated in the negotiations for the referendum campaign.

I regret that very much because I think we need to maintain our enthusiasm for the European Union anyway. In this field it is much more difficult because, as other speakers in this debate have said, the level of development in other countries is much lower. This is one where we are ahead; while Britain has improved in recent years, none the less we sadly find that we are behind other member states in industrial performance and behaviour. The Government talk in the referendum negotiations about the need for enhancing competitiveness in Europe, and I agree entirely. They mean different aspects of course but it is amusing to reflect that we are the only large member state that has a huge trade deficit of rather ominous size, whereas the other large members states—Germany, Italy, France and, I think, Spain—have a considerable trade surplus with Britain. A little bit more modesty in that context would come in handy, but in this particular area we are ahead.

I was a long-standing practitioner many years ago in the stock markets in the City of London. It is interesting to see how we have always maintained that lead by bringing size, capacity and influence of operation together; then the big bang really enhanced that. To some extent this is a kind of European-wide big bang exercise, not promoted just by private enterprise but also by legislation, as was the case in Britain. France followed with its own big bang a year after Britain and other countries followed suit. However there are still areas of lack of development. For instance in Germany, the biggest and most successful economy, surprisingly we find that financial markets are much less developed, notwithstanding the promulgation 14 years ago, I believe, of the Finanzplatz Deutschland scheme which helped to open up German stock markets. They opened up quite considerably at the margin but only a little bit proportionally. Therefore Germany also needs to take an interest in this field, because there are very strong beliefs there in the single market aspects in general and there should be on financial things as well. Their industry and smaller, Mittelstand companies are dominated by their relationships with the banks.

That is an aspect of how the culture takes a long time to change and patience is needed for that to happen. In other countries it can be quicker, particularly in the new member states where these matters may be much less developed, and therefore are more likely to be able to operate on the basis of new proposals coming from the Commission, which would gradually integrate these markets more and more.

I was delighted too when the noble Lord, Lord Hill, went to be the Commissioner for Financial Services and Markets. We were sad to lose him as Leader of this House—a very capable Leader with a sense of humour, which you need in that position—and he is now becoming a very successful Commissioner with exactly the right portfolio from the point of view of this country. We wish him well on his very hard-working and patient track to success, which will take some time.

I agreed with the noble Lord, Lord Davies of Stamford, when he was referring to the advantages in the United States of the open market system, the vast amount of money raised in the capital markets and the various desirable and productive effects of that. However, perhaps he should not get too carried away because in contrast to that the worrying problem in the United States is the level of debt that has been accumulated in the public sector and by Government, as well as elsewhere. The level of debt in the United States is a very serious problem and we need a balanced view of that. As long as everybody in the world is prepared to accept the greenback as the world’s leading reserve currency, then it is all right, but as the federal debt alone in the United States is $17 trillion, and half the states and 40 American cities are technically bankrupt, then that has to be held in check because one day it might collapse if an alternative reserve currency comes along. Lo and behold, look how close the euro is getting to the US dollar in terms of international banking payments transactions—the measurement of all transactions throughout the world every day. It is now six points behind the US dollar whereas a few years ago it was miles behind. The euro, therefore, is in reality not like it is in the view of the chauvinistic British press; it is a very successful currency in general, with three or four members who find it difficult to keep in recently, and most of them are solving their problems—now even Greece, with eight parliamentary votes in favour of the strict measures, has been able to do that.

I therefore hope that the Minister will reply to the various questions he has been asked. This is an excellent report, and I wish the Government well in pursuing this portfolio.