EU: Financial Stability and Economic Growth

Lord Giddens Excerpts

Thursday 3rd November 2011 Lords Chamber

[Lord Giddens]

My Lords, I also congratulate the noble Lord, Lord Newby, on initiating this debate on such a momentous topic. The Government rightly recognise that it is in the UK’s interest to achieve stability in the eurozone and, moreover, that this presumes much greater fiscal integration than has been true in the past. Some speak blithely of the euro collapsing, but that would cause social and political as well as economic chaos. I fully agree with the remarks of Germany’s Chancellor Merkel about the dangers of such an event, which must be prevented.

However, I will talk primarily about economic growth and job creation, on the premise that it is no good just preaching austerity, even to beleaguered Greece. We have to provide some kind of message of hope. We have to think in the long term, not just the short term. This has to be coupled to practical plans for investment and renewal. Where will new net jobs come from?

In approaching this question it is important to recognise, as the right reverend Prelate hinted, that the travails of the eurozone and—to some extent—the rest of Europe do not come just from the problems of the euro but from a failure to implement the Lisbon agenda. To put it more precisely, the Lisbon agenda was implemented only partially and regionally within Europe. Some countries, such as the Scandinavian countries, the Netherlands, Germany and to some extent the UK, followed some of the prime suppositions of the Lisbon agenda and are in a superior economic situation to other countries largely situated in the south, such as Spain, Portugal, Italy and Greece, which did not reform. Instead they borrowed and these borrowings have conjoined with the debt in the banking system to generate the extent of the crisis that we see now.

What policy should the Government support to promote growth and job creation in Europe? As I said, to do this one has to think beyond the current crisis. I will mention four main elements. They are not exactly the same ones as the noble Lord, Lord Newby, mentioned.

First, it is possible to promote the return of manufacture to Europe. I ask the Government to pay attention to the really interesting debate on reshoring—the opposite of off-shoring—that is going on in the United States. It is quite a technical debate and the issues are complicated; there is not a simple map that comes from it, but it is important. Many companies suffer from disruptions to their supply chains. Wages in China and India in core manufacturing sectors are rising rapidly. It looks as if it might be possible to recreate manufacture in certain core sectors in some industrial countries, including European ones. It is important to recognise that Europe is strong in manufacture—and not just Germany. For example, even Spain has a higher ratio of manufacturing output per person than the United States. The reshoring debate suggests that if you want to promote manufacture it should be done not only in high-tech, cutting-edge areas. It may be possible to build on established strengths. This is a different orientation from the past.

Secondly, as noble Lords have said, we have to complete the service directive and increase competitiveness in service industries within the single market. I work in higher education, where we are well behind on the possibility of standardisation which would promote mobility of labour. Thirdly—we do have to do that. To have a flexible, competitive economy, you must have mobility of labour. How does that sit with the Government’s strictures on immigration? Of course, movement of European citizens is not technically the same as immigration but mobility of labour is crucial to competitiveness. It is one of the main areas where Europe finds it hard to compete with the United States.

Fourthly, and finally, we have to concentrate on quality of growth and not just on quantity. This means two things, the first of which is distributional. What is the use of growth that only goes to 1 per cent of the population? Not much. It also means an environmental thing. Europe could be in a highly competitive position vis-à-vis the United States or China, neither of which provide a sustainable, environmental model out of which job creation can come. I would welcome the Minister’s comments on any or all of those points.