Euro Area Crisis: EUC Report

Lord Monks Excerpts

Monday 21st May 2012 Lords Chamber

[Lord Monks]

My Lords, one of the small pleasures of working in Brussels for eight years as general secretary of the European Trade Union Confederation was to be examined periodically by the House of Lords European Union Committee and to talk with others in the waiting room about just how serious and expert those sessions were, and how well respected the committee and this House is among those people on the inside who give evidence to it from across the Commission and the other European institutions. I thank the committee for a typically good piece of work. It is a balanced and sensible report on a very difficult situation. The tone of the report is about right as well; it is worried but friendly. It is constructive and trying to help, in a rather modest way—not in a kind of “Britain knows best” way, which is too often the tone of some of the critics of the euro and the way that it has developed.

As the crisis has been developing in the eurozone, there are more and more opportunities for those such as the noble Baroness, Lady Noakes, and others in this House who tend to say to the other side of the argument the four most annoying words in the English language: “I told you so”. The harsh fact is that this is the most difficult economic crisis in the West since the 1930s. It has probed and prised open the cracks in the design of the euro system—and the cracks, by the way, in the economic system which the UK developed over the past 30 years, with our overemphasis on financial services and our ignoring of the importance of manufacturing, and in some of the old-time truths which underpinned the rise of this country in the past. How do we get by? Let us be frank in this House about it. We get by through the devaluation of sterling, which is still 20% down against the euro, with all its troubles, and by quantitative easing, with our central bank printing money. These two ingredients are one reason—perhaps the main reason—why the UK recession is not a lot worse than it is, but those options are not available to our neighbours in the eurozone.

Perhaps we should think for a moment what would have happened without the euro and suppose that this crisis had happened and that all the national currencies were still in place. Their values would have been moving around as some Governments were forced, or chose, to devalue their currencies. Inevitably, had that happened accusations would be flying that the devaluations were a protectionist measure. That very powerful argument would have been going on in Europe at present. The single market would be under considerable challenge, as others considered taking retaliatory action against those who had devalued their currencies. Indeed, if our exports had been rather more impressive than our imports, and it was the other way round, we would have had a much harder time from our European partners than we have had since the devaluation of the pound took place. If the present situation is very difficult, and I certainly acknowledge that it is, the alternative would be difficult too.

British government policy is in the curious position of emphasising the virtues of austerity at home, in the UK economic and political scene, while loudly proclaiming the growth and expansionary path in the eurozone. That is particularly aimed at Chancellor Merkel. This leaves the UK wide open to a charge of, at best, inconsistency and, at worst, rank hypocrisy. After all, actions—not words—matter, and the shrinkage of the UK economy provides limited help to the economies of our neighbours in the present circumstances. Should we now not be asking ourselves how we can help the eurozone do what it must do if it is to survive? Could we, for instance, publicly and intelligently support the ideas of eurobonds and the mutualisation of some of the debt of the hardest hit economies? Could we not encourage making the European Central Bank a lender of last resort like national banks so that it could stand ready to rescue in the most difficult circumstances? Could we not take a fresh look at taxes on financial transactions both to check reckless speculation, of which we have seen far too much, and to act as a fresh and much needed source of public revenue? Can we support the creative use of the surpluses in the EU regional and social funds and a stronger financial base for the European Investment Bank? Can we take the lead on something? I believe it should be on a scheme on youth unemployment which would impact on those countries where that problem is particularly serious at present. The UK could take these positive initiatives from outside the eurozone. At present it is like a frustrated football fan sitting in the grandstand shouting plenty of advice that nobody takes any notice of.

The steps I suggest are not just gestures of help for the eurozone; they are self-help for the UK as well, just as the Marshall plan was not just American generosity but American self-interest. If the eurozone can resolve its contradictions and do something to deal with the cracks in its architecture, it will benefit itself, but it will benefit the UK as much as anyone.