European Union: Recent Developments

Lord Giddens Excerpts

Monday 17th December 2012 Lords Chamber

[Lord Giddens]

My Lords, it is a pleasure to follow the speech of the noble Lord, Lord Howell, at least some of which I agree with, especially the beginning and the end. It was good at least to hear him mention the London School of Economics. I begin by noting the curiously male dominated nature of debates in your Lordships’ House about the European Union. This one is no exception. Apart from the Minister, only two noble Baronesses are contributing, and one has conveniently been placed at No. 32, propping up the list of men. Perhaps the noble Baronesses present would get together informally and see whether anything could be done about this in future.

I want to concentrate on the economic situation of the eurozone and the EU. I base what I have to say on what is probably the most comprehensive and objective report on the state of the pan-European economy, produced under the auspices of the Lisbon Council and the Berenberg Bank, which is referred to as the Euro Plus Monitor. This year’s report is appropriately entitled, The Rocky Road to Balanced Growth. Rocky road or not, the results in the report stand out sharply from the despairing tone of many commentators, particularly in the British press. The report shows that fiscal deficits in the eurozone countries are being slashed at what it describes as impressive speed. The countries that have received financial backing—Greece, Ireland, Portugal and Spain—have all moved up the scale of indicators that the report provides in the reforms that they have instituted. These are real, not formal or promised, reforms. Greece is No. 1 on the scale, Ireland No. 2, Spain No. 4 and Portugal No. 5. The one in between is Estonia, which is No. 3.

The authors state, and I agree, that it is a mistake to counterpose austerity and growth in a simplistic way. Austerity can be a potent medicine, but should be in the service of clearing the way for economic growth. As with any other medicine, refusing to take it can add to the travails of the sufferer—indeed, lead to their demise—but so can an overdose. The latter, the authors say, is what is happening in the UK, and in a much more dramatic way in Greece, which risks entering a death spiral because of the strength of the dosage being forced down the patient. Greece may be No. 1 in terms of real reform, but starts from such a low base that it ranks at No. 17 in the eurozone on the other economic scale used in the report, a scale of overall economic health.

Another tranche of support for Greece has just been concluded, but I have to agree with the authors that, from this point on, the debate about Greece should shift towards long-term pro-growth reforms. Contrary to what many say, Greece is not likely to exit the euro and it is important, as the authors say, for the European Union to produce a specific plan for the future of that country at this point.

There are some very interesting further results in the report, which to many commentators will be counterintuitive. As for measures of economic health, the study shows a dramatic increase in external competitiveness as measured by a range of indicators, especially among most of the southern countries. In my view, that is an extremely important finding. It means that economic convergence is occurring under the pressure of change in the EU, something which the Lisbon agenda manifestly failed to achieve, economic convergence being a key condition for a return to health on the part of the eurozone economy.

The report shows amazingly widespread restructuring. It is going on almost everywhere. The authors also make the point that parallel changes to those transforming the eurozone are not happening in the United States or Japan, countries which are even more indebted than the eurozone average. If the eurozone countries can stay on the path of reform, the authors say, they could emerge as the most dynamic of Western economies. That is a big if, of course, but in the light of the data that the authors provide, it is no longer wholly implausible.

The analysis of the UK is both interesting and salutary. The UK, the report stresses, sees itself as an economy apart, with its own currency and so forth, pulled down by the fallout from the euro crisis. If the UK left the EU, it is often thought that it would be far more successful. The findings of the report do not bear that out at all. The UK is, in several ways, more vulnerable than most members of the eurozone. That is documented in detail in the report. For instance, the UK has one of the weakest fiscal positions of any EU country. Its ranking in terms of external competitiveness is no more than average, and a pretty weak average at that. In the second half of 2013, the report concludes, average growth rates in the eurozone are likely to be higher than those in the UK.

I hope that the noble Baroness will comment on those findings, based as they are not on supposition but on detailed economic analysis. I trust that her response will not consist of truisms or banalities but will be based on economic analysis in comparing the UK with the countries in the eurozone.