Euro Area Crisis: EUC Report

Lord Hamilton of Epsom Excerpts

Monday 21st May 2012 Lords Chamber

[Lord Marlesford]

When Sub-Committee A looked at the bailout, we saw again and again that the figures produced as necessary to prevent a catastrophe became ever greater by magnitudes. There is the old cliché about “A billion here and a billion there—you are talking serious money”; we almost reached the stage where it was “A trillion here and a trillion there”. If the prospects are for bailout, and that just continues, whatever happens and however much worse it gets, it has been fairly conclusively proved that people will take advantage of a bailout. It is human nature. It was the present governor of the Bank who said that if there is a run on the bank, the sensible thing is to join it. Therefore, if the bank is prepared to bail you out, the sensible thing is to accept the money.

My solution is that you impose a requirement to earn the euros—but with some help through the IMF, eurobonds, or eurobond investments—and you are thus able to rebuild your economy. I do not see, from the point of view of people living in Greece, that there is much difference between perhaps starting off with saying, “We are going to recreate the drachma; and the drachma is equal to a euro”, and then finding that the next day it is worth only half a euro, or, as the noble Lord, who likes speculating on these matters, might think, the drachma would soon be worth only a quarter of the euro. It would be a great deal better to recognise that the flexibility of having to have the euros with which to buy and pay for things would itself generate a reality that, I believe, is lacking.

[Lord Hamilton of Epsom]

I am rather uncertain as to how, if the Greeks basically default but stay with the euro, they would raise new debt in euros.

[Lord Marlesford]

I do not think that they could do so as such, except that, as I say, you might have a euro project in which people would invest. It would perhaps be somewhat similar to the private finance initiatives that have been used by the British Government—not entirely with success, maybe, but on balance they have been a useful source of making things actually happen. If people could see a good return, they would invest in it. That is a perfectly sensible way of doing it and, therefore, Greece would not be able to raise euro debt as such, unless the markets thought that that was viable. That is where the self-discipline is. The self-denial of recourse to the printing press would be a solution. I suppose I am really saying that if we get this form of self-discipline, which reality should require, and if this were to work in the case of Greece, it could be an example to other countries either not to follow suit and to grasp the nettle for themselves, or to recognise that this would be a viable way forward.