EUC Report: Economic Governance

Lord Marlesford Excerpts

Thursday 16th June 2011 Lords Chamber

[Lord Marlesford]

The noble Lord, Lord Harrison, had a very steady hand as the crisis migrated through Sub-Committee A, and we are grateful to him for that. Both the euro and the euro area are in crisis; they are both in a critical condition and need intensive care. The euro is, in my view, wildly overvalued and several of the member states are, as we know, on the brink of default. The European Central Bank is so loaded up with toxic debt that it is in danger. The Irish Finance Minister, Noonan, recently asked the IMF to get a haircut for the AngloIrish debt; that would not be very wise or safe for the ECB.

What I find astonishing is the undertaking given at Seoul at the G20 by several Finance Ministers, including my right honourable friend George Osborne, that there would be a guarantee of European sovereign debt up to 2013. We asked a number of our witnesses about it, and no one was able to spell that out. I really think that the Minister has a wonderful opportunity to enlighten us in that regard. Given that Her Majesty's Government are a part of it, we should know exactly what the commitment means and how it would work. Nobody appears to know.

The Government are absolutely right to say that the UK will not sign up to the EU permanent crisis mechanism. I congratulate the Government on setting up the Financial Policy Committee, with its twin remits: first, to reduce systemic risks and, secondly, to enhance the resilience of the UK financial system. Systemic risks, of course, cover both the fault lines in the financial system infrastructure and the cyclical threats from unsustainable levels of leverage, debt or credit growth. That is our solution and we are in that playing an important part in dealing with further threats to this country.

As so often, the EU's reach is greater than its grasp and Mr Trichet’s proposal for a European ministry of finance is such an example. He said that,

“a ministry of finance … would exert direct responsibilities in at least three domains: first, the surveillance of both fiscal policies and competitiveness policies, as well as the direct responsibilities mentioned earlier as regards countries in a ‘second stage’ inside the euro area; second, all the typical responsibilities of the executive branches as regards the union’s integrated financial sector, so as to accompany the full integration of financial services; and third, the representation of the union”—

the EU—

“confederation in international financial institutions”.

Personally, I do not think that really is a runner—certainly not as far as the UK is concerned. However, Mr Trichet is perfectly logical and having identified the fundamental flaw in the concept of the euro, he is sensibly putting forward what could help.

Personally, I believe what should happen is that individual euro countries should be enabled to leave the euro area without having to leave the EU but should be able to continue to use the euro, if they wish. It would probably be sensible for them to do so. Nobody is going to be prepared to buy recreated Mickey Mouse currencies. Finally, if China and the US, particularly China, are to be the world's economic locomotives we have to try to see that northern Europe, at least, can prosper and sustain those unfortunate countries in the south, which are going to suffer greatly from the inevitable deflation.