Greece: Default Contingency

Lord Myners Excerpts

Monday 20th June 2011 Lords Chamber

[Lord Sassoon]

My Lords, I am not going to comment on what is going on in the markets and with individual banks at all, and I am sure that my noble friend would not expect me to. However, I would make the point, which was also made in the Statement, that UK banks have been able, in very tough market conditions, to improve their funding position very considerably over the past year and more. The overall situation of the interbank market is far better—although we should not take any of these things for granted—than it has been at points during the financial crisis. It is therefore important, as my noble friend reminds us, that confidence within the banking system enables there to be liquidity. As I say, we are in a much better position in that respect than we were during the financial crisis itself.

[Lord Myners]

My Lords, I start by congratulating the Minister on taking longer to answer questions than he did to repeat the Statement given by his honourable friend in the other place. One might suggest that the reason we have low interest rates and banks are not lending is more to do with the fact that the economy is moving back towards recession than for the reasons that the Minister gave. Let me ask three short questions that I think can be answered by short and quite factual answers. First, have the Government absolutely ruled out any use of the EFSM in support of Greece or any other European nation, over and above the commitments already made? Secondly, has the Bank of England accepted Greek sovereign credit as collateral for loans made by the Bank of England to the European Central Bank, and therefore for loans on which the Bank of England is exposed? Thirdly, are we as a country exposed to the need to recapitalise the ECB should Greece default on its sovereign debt?

[Lord Sassoon]

On the role of the EFSM, I would refer the noble Lord to the words of the French Finance Minister, Christine Lagarde, when recently interviewed on the BBC. She talked about the package for Greece being one of bilateral loans, and she saw the likelihood of any future support for Greece as a continuation of that bilateral arrangement. So there has been no question of using the EFSM in the context of Greece. As for the question on the Bank of England, I am certainly not going answer for what the Bank of England does or does not take in—nor would the noble Lord, Lord Myners, for one minute begin to think that I would start answering questions about the bank’s collateral policies. As to the capitalisation of the ECB, that is an entirely hypothetical question, as the noble Lord knows full well.