Eurozone Crisis

Lord Higgins Excerpts

Thursday 27th October 2011 Lords Chamber

[Lord Sassoon]

First, it is probably not productive to rake over too much of the history of this. An awful lot of those who advocated the creation of the euro and the UK’s participation in it have been proved completely wrong by the way that events have unfolded over recent years. Therefore, arguing about whether competitiveness should have come before or after the creation of the euro is more for historians. That is why it was in my right honourable friend the Chancellor’s Statement that the competitiveness of the euro-periphery countries, vis-à-vis Germany as the benchmark of economic and industrial efficiency in Europe, is a critical issue that has to be addressed; and that the second dimension is the competitiveness of the EU as a whole in a global economy. I completely agree with the noble Lord that this has to be central to the solution going forward.

As to who should or should not be in the euro and what the size of it should be, that is for the euro to work out. The Government have no view on whether euro membership is inviolable. We simply say that that is a matter for the eurozone. What we want to see is these issues of competitiveness within and without the eurozone very high on the agenda. As far as dealing with internal competitiveness is concerned, that inevitably means a degree of closer fiscal co-ordination, the inevitability of transfer payments between members and all the logic that flows from that.

The competitiveness of the EU27 and the outward-facing euro are completely different matters that do not require similar questions of political union. We have a very good paradigm in which the EU27 can co-operate. It is just a matter of them focusing on the structural, market, competition and financial regulation issues, none of which requires any closer political union. They are technocratic, single-market trade and economic issues.

[Lord Higgins]

My Lords, I congratulate the Chancellor on the extremely active and skilful way in which he has defended British interests in the course of these very complex negotiations. As far as the possible costs of the operation are concerned, will my noble friend clarify the situation? Is he saying that under the arrangements that are now put forward there can be no cost to the UK taxpayer? It would seem to be true of the first part of the Statement. The position with regard to the IMF seems a little obscure because, if I understand it correctly, the Chancellor is saying that he is prepared to contribute more to the IMF but will not contribute if that money is going towards bailing out the eurozone or members of the eurozone. Will my noble friend say how that is to be achieved because, from my experience of the IMF, I am not at all clear?

As far as the banking side of things is concerned, my noble friend suggests that the Government may get involved in the process of recapitalisation if other methods do not succeed. Will he tell us what the likely or potential cost of that could be and, in particular, if we are going to contribute to the recapitalisation, is there any implication as far as ownership of the banks is concerned?

Finally, I shall pick up the point just made. At the end of the day, as far as I can see, none of these huge amounts of money being thrown around will make a significant difference to the competitiveness of, let us say, the Greeks. If the IMF is involved, then perhaps it will because it imposes very stringent conditions which, on the whole, have been enforced, but all this money is simply flowing around to bail out the Greeks. It is not making them more competitive. Indeed, is it not fairly apparent that the Greeks joined the eurozone at an exchange rate at which they were not competitive? As far as one can see, it is inconceivable that they will become competitive. These measures certainly do not do much to achieve that. In that case, are we simply delaying the day, sooner or later, when the Greeks have to leave the euro?

[Lord Sassoon]

My Lords, let me try again on the IMF because my right honourable friend and I seem to have failed so far to get this clear. I will have another go. There was a proposal under the previous Government, which was endorsed by this Government—and voted against by the Opposition in another place even though their party had previously put it forward—for the IMF to increase its resources to match the growth in the global economy. It has nothing to do directly with the eurozone but is to do with the size of the global economy and the IMF’s global mandate. We support that increase in resources.

I should say again that no member shareholder of the IMF has lost any money on the back of the IMF’s contribution to the many adjustment programmes that it has entered into for many years. In relation to Europe and the eurozone, the IMF is involved in the three eurozone programmes. We have no difficulty about the IMF being involved. That is what it is there to do, provided it is entering into adjustment programmes related to eurozone countries on the same basis as it has done to this point and as it would do with any other country. That is absolutely fine. However, the IMF should not contribute to some special eurozone fund—that is not what the IMF is there for—and I have no reason to believe it will do that. We certainly would not be part of any such special use of IMF resources.

It is not correct to say that there will be any UK contribution to the recapitalisation of the eurozone banks. If there is a contribution from the public sector, the taxpayers of Europe, it will come from those countries that have contributed to the ring-fenced fund, the EFSF, and the UK is not part of that fund. We have recapitalised our own banks. We are not contributing to the recapitalisation of the eurozone banks. I hope that that is also clear.

Greek competitiveness is addressed by the adjustment programme agreed with the EU and the IMF. The challenge is to make sure that, under the normal ongoing monitoring programme over the next few years, Greece is held to its commitments. But, critically, there are, in its adjustment programme on which its bailout package is conditional, all sorts of conditions aimed to increase Greek competitiveness.