European Union (Approval of Treaty Amendment Decision) Bill [HL]

Lord Reid of Cardowan Excerpts

Wednesday 23rd May 2012 Lords Chamber

[Lord Reid of Cardowan]

My Lords, I wish to make three simple observations in the gap. The first is that the recession and the problems of the eurozone may be related but they are actually distinct. The recession is a global challenge; the eurozone is a home-grown European problem because it is based on the wretchedly misconceived delusion that you can bring together 17 or more nations of varying productivity and competitiveness and so on and merge them by an act of sheer political will into an economic reality other than the one that exists. It is probably the biggest political misjudgment since Versailles and may lead to the same form of consequences. Incidentally, on that subject, not all red lines were abandoned by the previous Government, as has been suggested. One that was maintained was the demand for convergence before joining the euro, and it was maintained in bright red because it was a demand that could never be met in our lifetime, which is precisely why it was there.

The second point arising from that is that the problem is therefore chronic and not acute. It runs right through the eurozone itself. It is a fundamental problem and my great fear is that the cure will be worse than the disease. The noble Lord, Lord Dobbs, spoke of the treaty of Versailles and the economic consequences in Germany. However, it was not the economic consequences alone that led to the extreme social and political instability but the perception that they were being imposed from outside. Therefore, if the cure for the eurozone is further centralisation in Brussels, which is at the centre and is seen to be a frontage for Germany, it will not cure the problem. It was predictable and predicted that social and political instability would be added to financial instability, and that is precisely what is happening in Greece.

Thirdly and finally, it is not anti-European to point these things out. It is not anti-European to argue against the eurozone. It is not an act of friendship to encourage your friends to continue on a ruinous path which you believe will result in an even greater catastrophe for them. There is an old military adage, “Never reinforce failure”. If something is fundamentally flawed and failing, it is no act of friendship for us to encourage people to go in that direction. I wish that we had spent just half the money that we have spent trying to bail out the euro with every member inside it on something similar to a Marshall Plan—a really radical plan which recognises the fundamental flaw and then assists our European colleagues who have made the terrible mistake of joining the wretchedly misconceived eurozone to exit from it. So far as I am concerned, that would be a real act of European solidarity.

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[Lord Liddle]

I am sure that that is the Chancellor’s interpretation.

I recognise that there are some distinguished Members of this House who are long-term supporters of British membership of the European Union, but never believed that the euro could be made to work. We had wonderful speeches from the noble Lords, Lord Lamont and Lord Lawson, but I do not agree with what the noble Lord, Lord Lawson, said. He said that monetary union will work only if you have what the Germans call the coronation theory—the customs union first, the political union and then the monetary union to crown it.

I recognise that the euro was set up on a flawed basis. I thought that as the problems occurred they would be addressed incrementally and that reforms would be introduced that would make the system work. The trouble is that we have had a cushy decade of total complacency—it was a cushy decade for the UK as much as it was for the eurozone—in which the impetus for reform was completely lost. Short of federal union, if the eurozone took the kind of steps that Labour is advocating now it would have a viable future.

[Lord Reid of Cardowan]

Would my noble colleague consider that perhaps the problem was not complacency but precisely the assumptions that he has outlined to us: that as problems arose, incrementally we would go towards a central state in Europe and no one would ask the peoples of the nations of Europe? That is precisely the problem because what is being suggested now is one of these huge incremental steps. I promise him that there will be a reaction of nationalism in Europe because it will require not only centralisation but the imposition of austerity from the centre. We will create the very conditions that caused such resentment in Germany in the 1920s and 1930s.

[Lord Liddle]

I have the greatest respect for my noble friend Lord Reid, and in my life I have learnt an awful lot from him. However, his assumption that the only alternative to where we are now is a central state is fallacious. What have been lacking in the past 10 years are the incremental reforms of the kind that I have outlined that would have made the euro work.

I have gone on too long. I believe the consequences of a euro break-up, which some noble Lords seem to want to will on, would be horrendous. Eurosceptics make a fundamental mistake in thinking that for a country such as Greece, exit from the euro would solve its problems. A lot of British people think that it would be a classic devaluation, rather like our exit from the ERM in 1992. It would be nothing like that. Ordinary people’s savings would be wiped out as the Greek banks collapsed. There would be severe additional spending cuts, because with all borrowing cut off the Government would be unable to finance the deficit. They would have to cut welfare benefits and public pay. The new currency would plummet in value because there would be no private inflows of capital to sustain the balance of payments. It would be an economic disaster zone.

There would be huge social tensions between the better-off, who had already got their money out of the country, and the wage earners, the poor and the unemployed, who would have to live on the devalued drachma. We would see—here I agree with my noble friend Lord Anderson—the emergence of a failed state on Europe’s south-eastern flank, with incalculable consequences for relationships with Cyprus, Turkey and the rest of the Balkans. As my noble friend Lord Reid knows well, this is a part of the world on which we have spent blood and treasure over the past two decades to try to stabilise. Kick the Greeks out of the euro, and what are we going to do about stability in the Balkans? It is just too awful to contemplate. That is why the euro must, and can, be saved—if we adopt the right policies to do so.

The noble Lord, Lord Dobbs, spoke eloquently about his lessons of history. My lesson would be that a Greek exit would be followed by competitive devaluation, protectionism, a run on other countries, terrible contagion problems and an outbreak of nationalism. Conceivably, it could return Europe to the inter-war years, so I want Britain to play a constructive, committed and engaged role in trying to make this thing work, not a carping, hectoring and lecturing one. We need a rescue, we need the ESM, and that is why we need this Bill.