Queen’s Speech

Lord Flight Excerpts

Thursday 17th May 2012 Lords Chamber

[Lord Flight]

My Lords, towards the end of the gracious Speech there are the somewhat opaque words:

“My Government will build strategic partnerships with the emerging powers”.

I would have liked that to refer specifically to our friends in the Commonwealth, but I was very heartened by what the noble Lord, Lord Howell, had to say in his excellent opening speech. To me it is particularly relevant in the face of the likely impending break-up of the eurozone and the impact that that is likely to have on European economies and our relations. The immediate and most important foreign affairs issue is what is happening on the continent. There is the obvious fight to the death between economic and market forces and political commitment, where the lessons of history tell us that major economic forces tend to prevail. There is the obvious point that many have made before—that for disparate economies to share a currency is extremely difficult at the best of times. Indeed, I was surprised to see an article arguing that the Commonwealth was likely to be a more successful group of economies to share a currency than the EU countries.

Everyone knows that if you are going to share a currency you have to have transfer payments from the more successful to the less successful. It boils down to whether Germany is willing to make the necessary transfer payments on a regular basis to the uncompetitive economies, which would amount to some 35% per annum of German GDP. That seems pretty unlikely. We live at present with the likely impending default and exit from the euro of Greece. I expect that a firewall will probably prevail in the near term to protect Spain, Portugal and Italy, but that does not address the fundamental problem of lack of competitiveness. These economies cannot recover and grow, and they cannot put their public finances right, if they are 35% uncompetitive against the successful parts of Europe. The issue is whether the break-up will be chaotic or orderly. We all hope that it will be orderly but, whatever, there would be economic pain in the short term, although once the necessary devaluations have occurred and these currencies are competitive again, do not understate their ability to bounce back within two or three years.

What British foreign policy needs to focus on right now is what our attitude is towards the EU in the wake of these likely events. What will be happening is centrifugal forces. The nation states of Europe with their own currencies and central banks returned will need to follow economic policies appropriate to their circumstances. Some may even need to impose capital controls. The EU, which has been centralising for 40 years and trying to move towards a single political unit, is suddenly going to be pulled in the other direction. What is our view towards this? What would be our view if there were an attempt to leap towards political union? I very much doubt it, but that obviously could be one reaction.

What the UK has always wanted to see is an area of free trade and co-operation, achieving consensus, not enforcing policies but moulding more and more European co-operation together over time—but naturally and not coming by command from the centre. It will also need a much cheaper EU. I checked with the Treasury, because I could not believe a report in the newspapers that in 2013-14 Britain’s net contributions to the EU would be £31.3 billion. The Treasury confirmed that figure to me. I thought that it was still only £12 billion or £13 billion. It is not a sum of money that this country can afford. But, more than that, I cannot see that Italy and Spain, the countries that are going to be experiencing problems with the euro, will be willing to make large financial contributions to a massive EU structure. We may not necessarily say it in public, but this country needs to think about the political implications of the euro imploding and what policies it will adopt in that event.

For some time the EU clearly has not been the engine of growth that people thought it would be when we first applied to join it way back in the 1960s and 1970s. It has turned out to be a relatively failed economic region. I go back to where I started. We need quickly to develop effective commercial and investment relations with the emerging BRIC economies, in particular with the Commonwealth economies. As I have pointed out before, my particular plea is for a much closer relationship between this country and India—politically, economically and potentially even defence-wise. The University of Cambridge will tell you that the only two countries that matter in terms of our universities and their quality of students are America and India. The Prime Minister of India has virtually indicated that he would like to see a special relationship being established for top postgraduate students coming to this country, which would enable a lot of the hassle of the visa process to be handled in a friendlier fashion.

I can think of other areas where there is considerable scope for special relationships between this country and India. We are all aware that certain problems need to be resolved but I do not think that they are insoluble. The Indian community is a successful and dynamic part of this country and there is a great deal of sympathy between the people of India and the people of Britain. It is time to galvanise that while not ignoring the other members of the Commonwealth. Important things are going on in Africa and in the older members of the Commonwealth, particularly Canada, where there is much scope for this country to find commercial partners.

There is a nice commitment in the gracious Speech. I know that the noble Lord, Lord Green, is travelling the world doing his best to generate trade deals on the ground, but more needs to be done in terms of political initiatives. We need to face up to the fact that the Europe that will emerge on the back of what is likely to happen to the euro will not be a great economic engine for this country.