Greece

Lord O'Neill of Gatley Excerpts

Monday 6th July 2015 Lords Chamber

[Lord O'Neill of Gatley (Con)]

My Lords, with the leave of the House, I will now repeat a Statement made in another place by my right honourable friend the Chancellor of the Exchequer. The Statement is as follows:

“Mr Speaker, I last updated the House on the situation in Greece a week ago. Since then, the Greek Government have failed to make the IMF payments that were due. And the Greek people have expressed a decisive view in yesterday’s referendum, and rejected the creditors’ terms.

Greece is a proud nation and a very long-standing ally of the UK and we respect the decision of its people. But there is considerable uncertainty about what happens next. We need to be realistic—the prospects of a happy resolution of this crisis are sadly diminishing.

Over the last 24 hours the Prime Minister and I have spoken to some of our counterparts, and I have spoken to the head of the IMF and, just a few minutes ago, the chair of the eurogroup. We are urging all sides to have a final go at trying to reach an agreement that defuses the crisis. The next steps are the ECB discussion taking place right now, tonight’s Franco-German summit, and tomorrow’s gathering of eurozone leaders. If there is no signal from these meetings that Greece and the eurozone are ready to get around the table again, we can expect the financial situation in Greece to deteriorate rapidly. For now, the British Government’s position remains the same. We will do whatever is necessary to protect the UK’s economic security at this time.

This morning, the Prime Minister chaired a meeting, attended by the Governor of the Bank of England, myself and others to review our response to the ongoing crisis. So far, the financial market reaction has been relatively contained. Private sector exposures are far less than three years ago, and the eurozone authorities have said that they stand ready to do whatever is necessary to ensure the financial stability of the euro area. But the risks are growing, so it is right that we remain vigilant and monitor the situation carefully. I am in close contact with the governor.

We are also acting to protect British residents and holidaymakers in Greece. Last week I told the House that the Department for Work and Pensions and public service pension administrators had started contacting Greek residents that draw a British state or public sector pension from a Greek bank account. I can now confirm that the DWP has spoken to 2,000 people, advising them on how to switch payments to non-Greek bank accounts if they wish, and the DWP has enabled people in Greece who receive a UK state pension to set up a UK bank account if they do not already have one. International payments into Greece are still exempt from the restrictions that the Greek authorities have placed on the banking system, so I can confirm today that UK Government payments, including state pension and public service pension payments, will continue to be made in the usual way.

We are doing more to keep holidaymakers and residents informed about the developing situation. We are in regular contact with the travel industry to understand the impact on British nationals, and we have increased the number of Foreign Office staff in our embassy in Athens, to be prepared for whatever happens. On the islands of Crete, Corfu, Rhodes and Zakynthos, where many British tourists are, and where we already have a vice-consular presence, we have deployed more consular staff to support the teams there. But it is unrealistic to think that we can provide a consular presence on all the Greek islands, and that is why we urge everyone travelling to Greece to look at the travel advice before they go.

It is clear British holidaymakers should take sufficient euros in cash to cover the duration of their stay, emergencies, unforeseen circumstances and any unexpected delays. Travellers should be careful and take sensible precautions against theft. As the economic crisis in Greece persists, there are greater risks of shortages. In recent days, the media have reported a shortage of medical supplies in Greece. Therefore, I want to reiterate the Foreign Office’s advice that UK travellers take sufficient supplies, including prescription medicines, for the duration of their trip. Going forward, we will continue to ensure that travel advice is regularly updated with the latest information and Her Majesty’s ambassador in Athens will provide regular updates there on the UK response in Greece.

Finally, we have put in place measures to support British businesses. HMRC’s “Time to Pay” scheme is now open to help businesses that are experiencing cash-flow problems as a result of the banking controls in Greece. The Department for Business, Innovation and Skills has published detailed guidance to help business, which can be found on the Government’s website. Businesses experiencing problems with their Greek contracts can call the Business Support Helpline, which will direct them to commercial lawyers with experience in the Greek market, or they can contact their Member of Parliament, and we will provide direct advice.

The Trade Minister met major UK companies and business groups last week to discuss the situation, and he will have further meetings this week. This is a critical moment in the economic crisis in Greece; no one should be under any illusions. The situation risks going from bad to worse. Britain will be affected the longer the Greek crisis lasts, and the worse it gets. There is no easy way out. But even at the 11th hour, we urge the eurozone leaders and Greece to find a sustainable solution. Meanwhile, here in Britain, we must redouble our efforts to put our house in order, and in the Budget in two days’ time, I will set out exactly how we will do that”.

My Lords, that concludes the Statement.

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[Baroness Ludford (LD)]

My Lords, I, too, thank the Minister for repeating the Chancellor’s Statement. I find the Statement curiously semi-detached, and I would have hoped—to repeat a word which the noble Lord, Lord Davies, used—for something a little more proactive. The Statement says that we will do whatever is necessary to protect the UK’s economic security, but then it just talks about remaining vigilant and monitoring the situation. Can the Minister be rather more precise about what action is being taken to protect the UK’s economic security? Is the UK as protected as it can be from whatever might happen after tomorrow, whether that is a Grexit or other financial difficulties? Is it the Government’s view that a Grexit has been priced into the markets? What can we expect in that respect?

What about British people who have money in Greek banks? If I recollect correctly, it was said last week that four of the banks are represented in this country, three of which have branches and one of which has a subsidiary. If there is a haircut of deposits, which there has been speculation about, what will happen to British deposit holders? Over the weekend it was remarked that the Government intend to reduce the cap on deposit guarantees from £85,000 to £75,000 because of the drop in the value of the euro. That seems rather bad timing in view of the potential difficulty with bank deposits.

What will be the advice to British tourists if it is clear after tomorrow that Grexit will happen? We all hope that there is not social upheaval, but we have to anticipate that the difficulties in getting cash, medicines and so on will only get worse. What is the Government’s contingency plan? I find what is mentioned in the Statement a little abstract. I do not see clear plans for those who, for instance, might need pharmaceutical supplies during their visit. Will the Government advise people with medical needs not to go to Greece? I would regret that, but is it possible that it will happen? Can the Minister be more specific about what the Government plan to protect our economy and our citizens?

[Lord O'Neill of Gatley]

My Lords, the noble Lord, Lord Davies, and the noble Baroness, Lady Ludford, asked many questions, so I shall try to be as brief as possible.

A number of these matters were touched on in my right honourable friend the Chancellor of the Exchequer’s Statement, but, to repeat, the Prime Minister and the Chancellor have had discussions with a number of key participants in trying to bring this crisis to an end, including—for the Chancellor—the head of the IMF, today, and a number of members of the eurozone finance group. I believe that we are as up to date as possible in the thinking of all the key participants ahead of the key meetings tonight and tomorrow.

With respect to businesses and tour operators, I shall expand on what I said. BIS has published detailed guidance to help business as a result of events in Greece. It is available on the Government’s websites along with a business support telephone number. As I also said, the Trade Minister has met a number of UK companies and business groups to discuss the situation and they seem pretty calm. He plans to meet with them again this week. The same goes with respect to our contacts with a number of important tour operators.

It is indeed the case that the four largest Greek banks have branches in the UK. However, their balance sheets are pretty small by the standards of these things, with deposits totalling less than £225 million. Eurobank is now a branch of the Luxembourg subsidiary and so the Luxembourg subsidiary deposit guarantee scheme will provide protection to eligible deposits there. The others are covered by the Greek deposit scheme. There is one Greek bank with a subsidiary in the UK, Alpha Bank, and this is a separate, stand-alone entity from its parent bank. It is small with assets slightly over £0.5 billion at the end of 2014 and, as a UK subsidiary, it is regulated by the PRA and its deposits are covered by the Financial Services Compensation Scheme.

There were further questions about the schemes in place for the deposit guarantee. The amount of €100,000 was agreed back in 2010 in euro terms. It is being reduced in sterling terms at the end of this year merely because of the resulting appreciation of the pound against the euro.

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[Lord O'Neill of Gatley]

My Lords, I thought the days where I was speculating about which members were suited and which ones were not to participation in the euro had long since gone. In that regard I can only say that I do not believe it is particularly useful for anybody for me to offer my own judgment on such matters at this time, particularly ahead of some very important discussions this evening and tomorrow.

[Lord Elystan-Morgan (CB)]

My Lords, can the Minister tell the House as a matter of basic law whether the treaties that brought about the formation of the eurozone and the regulation thereafter contain any provision at all with regard to a member state unilaterally leaving the eurozone of its own accord or the states, other than an errant state, in some way bringing about the departure of such a state from the eurozone? Am I right in thinking that the treaties altogether are as silent as the grave with regard to the departure of any state from the eurozone?

[Lord O'Neill of Gatley]

My Lords, as far as I understand the considerable things written on this topic, it is somewhat unclear. It will be a very interesting test case in the event of such an outcome from these important discussions in the next couple of days, and I can imagine a number of legal types will have some fun pursuing these discussions in the event of such an outcome.

[Lord Davies of Stamford (Lab)]

My Lords, I do not think I can readily recall another instance in history in which a Government have succeeded in such a short time in running their economy into the ground, going in six months from an economy which was expanding again and with falling unemployment, to the brink of catastrophe, where Greece stands at present. The Greek Government have now been supported in their policies by the Greek electorate in yesterday’s referendum, apparently on the basis that the more self-destructive their behaviour, the more likely they are to get a large amount of money out of the rest of the world—either out of the rest of the eurozone, or out of the rest of the European Union or the IMF, both of which we are of course members. Does the noble Lord agree that it would be extremely regrettable if such a precedent were created? It would be a major moral hazard if one could get away with such blackmailing policies, and it is very important that this country in particular, as a member of the IMF and the European Union, has nothing to do with any such proposal.

[Lord O'Neill of Gatley]

My Lords, I am afraid that I will answer in a similar spirit to my answer to my noble friend Lord Lawson’s question a couple of minutes ago. I have spent many years talking about these kind of things, but we are at such a delicate stage of discussions following the outcome of the weekend’s referendum, which, I think I am right in saying, was considerably larger than was anticipated by virtually anybody. Now, through this evening and tomorrow, very delicate discussions will take place, and it would not be advantageous for anybody if I offered my opinion on anything that the noble Lord asked about such important, critical details.

[Lord Higgins (Con)]

My Lords, I understand the point made by my noble friend, but none the less, it is very important that the Chancellor’s expertise and our own in this matter should be fed in, at any rate behind the scenes, perhaps to try to pour oil on troubled waters, which up to now has been very difficult. I previously expressed in your Lordships’ House a view similar to that of my noble friend Lord Lawson. The economic reality which Greece is facing is that it is locked into an uncompetitive exchange rate, and it is not going to become competitive. No amount of bailing out or assistance otherwise will prevent that happening. If it is patched up now, we will be back in the same situation in a comparatively short time.

None the less, I urge my noble friend to make two points in these discussions, if need be behind the scenes. First, it is very important to make clear to Greece, and for our European partners to do so, that leaving the eurozone does not mean that it has to leave the European Union, the political implications of which would be very serious indeed. Secondly, if we get to a situation where Greece leaves the eurozone, it will be tremendously difficult to sustain the new exchange rate, and it would be advisable for the financial assistance that would otherwise be given in the form of bailout to be given to sustain Greece so that after leaving the eurozone it did not end up in a constant cycle of inflation and devaluation. Such a situation would have to be stabilised, and we should do all we can to ensure that it would be. Will my noble friend seek to ensure that that would happen?

[Lord O'Neill of Gatley]

My Lords, my noble friend raises some very interesting ideas and suggestions, and in the course of our ongoing discussions with our friends in all parts of the eurozone, which I am sure will continue through the rest of today and tomorrow, we will pass those ideas on. I thank him.

[Baroness Falkner of Margravine (LD)]

My Lords, the noble Lord, Lord O’Neill, is wise to resist the encouragement of the noble Lord, Lord Lawson, to comment on his own views about the current situation in Greece, particularly given the role that Goldman Sachs played in Greece’s original submission to join the eurozone. However, I will ask a concrete question which is covered in the Minister’s brief. He said that his right honourable friend the Chancellor of the Exchequer has had conversations with the head of the IMF. Given our exposure to Greece, given the IMF’s exposure to Greece—something in the region of £23 billion—and given that the IMF believes that the debt sustainability needed by Greece is roughly £50 billion, would the United Kingdom Government be prepared to expose themselves further, were the IMF to go ahead and offer Greece emergency lending at this point?

[Lord O’Neill of Gatley]

My Lords, Greece has already missed a payment to the IMF, as everybody knows, and has fallen into arrears with the fund, which is not technically a default. The IMF has said that its shareholders will not suffer losses, saying:

“Notwithstanding the overdue obligations, member countries’ claims on the IMF are fully secure and the IMF will continue to meet its obligations to members and lenders”.

Greece has, of course, an existing IMF programme and it is important that future support for Greece helps it to meet the conditions necessary to continue with that programme, including the agreements of conditionality, sufficient financing assurances and the clearance of any arrears.

[Lord Campbell-Savours (Lab)]

My Lords, we cannot do very much because we are not in the euro but there is some way in which we can help. There is a crisis in hospitals in Greece. Equipment is breaking and there is a lack of medicines and equipment for treating ill people. Can we do anything to help on a humanitarian basis?

[Lord O’Neill of Gatley]

My Lords, let me reassure Members of this House that—as I said in my prepared comments and in repeating my right honourable friend the Chancellor’s Statement—we will do whatever is possible to make sure that any tourists or businesses going to Greece get the right guidance and advice. As to the issues on the ground for the Greek people, raised in the noble Lord’s question, we will be looking for further updated guidance over coming days, pending how the discussions go tonight and tomorrow on the financial and economic relationship between Greece and the rest of the eurozone. But, of course, we would all like to think that we will try whatever is within our means to help the Greek people in potentially challenging circumstances if they were to deteriorate further.

[Lord Howell of Guildford (Con)]

My Lords, one idea that has been widely referred to but was not mentioned in the discussions in the other place this afternoon is that Greece could temporarily leave the eurozone and return if and when matters settle down later. I do not expect my noble friend to give an opinion on that now, but will he see that that point is looked at in the considerations in the coming days? Can he give us any guidance—possibly he cannot—on the treaty-changing implications of that or any other proposal connected with this growing crisis?

[Lord O’Neill of Gatley]

My Lords, while that may not have been discussed in the other House, it has, as I am sure my noble friend Lord Howell is aware, been suggested by some other members of the eurozone. It is certainly something that we are aware of having been raised and it will be mentioned again in discussions; that is for sure. I reiterate, however, that it is not appropriate for me or my right honourable friend the Chancellor to talk about such matters ahead of the delicate discussions that will take place tonight and tomorrow.

[Lord West of Spithead (Lab)]

My Lords, will the Minister confirm that contingency work has been done on the implications of what is happening in Greece for the eastern Mediterranean flank of NATO? Is he aware of any moves by the Russians to deal with Greece by giving assistance similar to that offered to Cyprus to get access to bases there? Lastly, are we thinking of any way to help the Greeks with the tens of thousands—in fact, more than 100,000—refugees who have poured into Greece as a result of the war in Syria et cetera?

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[Lord O’Neill of Gatley]

My Lords, while I am sure an offer of Russian help could appear, it is within the aspirations of both Greece and its European colleagues and friends to solve the outstanding challenges between them, whatever is offered from Russia.

With respect to the further questions of the noble Lord, Lord West, we should be careful about what specifics we suggest we may offer until we see further evidence of what may emerge from the discussions tonight and tomorrow. As the Chancellor has said, we should be prepared for the worst but should actively seek to be in a position to help the Greek people and, of course, to protect our own economic interests.

[Lord Lamont of Lerwick (Con)]

My Lords, while it is true that the Syriza Government have made some bad policy decisions and have at times been very provocative, is it not also true that on one fundamental point they are right—in 2010 there should have been a much more extensive write-off of the Greek debt? If we are to have a sustainable situation in Greece, it requires, as the IMF has now said, a substantial further write-off of debt because the debt is not sustainable. This continuing extending and pretending is only shoring up more trouble in the long run.

[Lord O’Neill of Gatley]

My Lords, as my noble friend says, these opinions have been offered by many people, including in the past week or so, according to media reports, the IMF. It is not of great help in resolving issues today to reflect on what might or might not have happened in 2010. However, in the discussions that take place this evening and tomorrow, all sorts of options and ideas will be pursued to, I hope successfully, bring these growing economic risks and challenges under better control.

[Lord Birt (CB)]

The Minister has rightly emphasised that we are at an extremely delicate stage. At such delicate times, is it not also important to be really clear about the principles involved? The Greek Government have willingly, knowingly borrowed money on a massive scale from a number of institutions, including within the EU, over a very long period. Will the Minister agree that—if only pour encourager les autres—the worst of all options would be to accept that a sovereign Government should not repay their debt?

[Lord O’Neill of Gatley]

My Lords, my reaction, possibly based on my past experience, is as with a number of other questions that have been put to me. Ahead of such important discussions, I do not think it is particularly useful for me as the Minister, or for anybody in similar areas of government, to speculate idly about what is right or wrong. A lot of information is available about events that have led up to this crisis. It is the responsibility of the Greek authorities, having taken their stance to the Greek people over the weekend, together with eurozone Finance Ministers and their leaders, to try to bring this crisis to a better resolution in the next couple of days.

[The Lord Bishop of Chester]

My Lords, I was struck in the Statement by the sentence:

“Greece is a proud nation and a very long-standing ally of the United Kingdom”.

The danger in all of this is that, because we are not in the eurozone, we slightly sit on the fence, hedge our bets or stand on the sidelines. That can leave a certain vacuum. I have been very upset by the rhetoric between Germany and Greece in recent weeks—on both sides. The two nations are a little like chalk and cheese in so many ways. Politically, I wonder whether there is not a role, precisely because we are not in the eurozone politically, that we are not taking. What high-level contacts have there been between the Greek Government and the UK Government on these political issues?

[Lord O'Neill of Gatley]

My Lords, the right reverend Prelate asks, again, a slightly delicate question. I mentioned in my formal comments that the Prime Minister and the Chancellor in particular had a number of discussions with key participants from the eurozone and the head of the IMF earlier today and this afternoon. I suspect that there will be further discussions during this evening and tomorrow. We are obviously aware of our position as an EU member relative to those inside the eurogroup, and we will offer in private the views that we think may be of some use in helping them come to the right resolution.

[Lord Richard (Lab)]

I also have a slightly delicate question. The Minister referred a number of times to the delicate negotiations and discussions that are going to take place today and tomorrow. Can he perhaps lift the curtain just a little about what input Her Majesty’s Government hope to have in those discussions? Have we been asked for any advice specifically? Are we giving advice? I am not asking what the advice is; only that our presence should be established. Is that the position?

[Lord Richard]

My noble friend asks whether we are just going to be observers or will be participants in one form or another.

[Lord O'Neill of Gatley]

My Lords, it is important to remain focused. In terms of our own policies, we must focus on what we can do about the future of our own economy and, in the context of this crisis, make sure that we are protected from any potential further contagion in the best way that we can. As I also said, in private, we will offer discussion and ideas as and when we are asked. But the key for us is to make sure that we have the right control over the levers that we can control ourselves and that are relevant to the performance of the UK economy.