Eurozone Financial Assistance

Mark Reckless Excerpts

Tuesday 24th May 2011 Commons Chamber

[Mark Reckless (Rochester and Strood) (Con)]

I beg to move,

That this House notes with concern that UK taxpayers are potentially being made liable for bail-outs of Eurozone countries when the UK opted to remain outside the Euro and, despite agreement in May 2010 that the EU-wide European Financial Stability Mechanism (EFSM) of €60 billion would represent only 12 per cent. of the non-IMF contribution with the remaining €440 billion being borne by the Eurozone through the European Financial Stability Facility (EFSF), that the EFSM for which the UK may be held liable is in fact being drawn upon to the same or a greater extent than the EFSF; further notes that the European Scrutiny Committee has stated its view that the EFSM is legally unsound; and requires the Government to place the EFSM on the agenda of the next meeting of the Council of Ministers or the European Council and to vote against continued use of the EFSM unless a Eurozone-only arrangement which relieves the UK of liability under the EFSM has by then been agreed.

I thank the Backbench Business Committee for facilitating this debate.

Ever since the civil war, and perhaps back to the Plantagenet era, the primary duty of this House has been to control supply, to hold the purse strings and to decide what the Executive may or may not spend on behalf of our constituents. It is not for Her Majesty’s Treasury to decide what unknowable liabilities to sign our constituents up for. It is for us, as their elected representatives, to make that decision. I ask every Member to consider that point when they cast their vote later. It is our decision, and only we stand between our constituents and the ability of others to spend their money on their behalf.

My simple point is that it is unaffordable for this country to bail out countries that joined a currency that we chose not to join, when we ourselves are borrowing as much money as, if not more than, those very countries. We are seeing £12.5 billion of our constituents’ money—twice as much as was saved in the whole first year of the coalition Government, and £500 a household—being spent on bail-outs; and I mean “spent”, because although the Government tell us that they expect the money to be paid back, if that is so, why will the private sector not lend? Why are there rates of 10% to 17%?

[Kelvin Hopkins (Luton North) (Lab)]

I congratulate the hon. Gentleman on raising this issue and support what he is saying. Does he agree that although bailing out Greece, Ireland or Portugal is expensive in itself, today the contagion is spreading to Spain and Italy, bail-outs for which would be absolutely prohibitive for the whole European Union? Would that not be nonsense?

[Mark Reckless]

The hon. Gentleman is quite correct, and it goes on and on. Yet it is not our problem, and it is not our currency. If we can do anything, we can save ourselves and perhaps Ireland, but we cannot save the euro. The eurozone countries made their decision. We advised them against it, yet they chose to create a currency without a fiscal union to back it up. It is their problem, not ours.

[Mr Andrew Tyrie (Chichester) (Con)]

Given that the “no bail-out” clause has turned out to be completely worthless, the eurozone will need to design some type of resolution procedure for countries, in much the same way as we are trying to devise one for banks at the moment. Is it not therefore all the more important that, since we are not members of the eurozone, the UK taxpayer should have absolutely no part in the construction of that resolution procedure? We do not want to find that there are any more burdens on the UK taxpayer.

[Mark Reckless]

My hon. Friend is quite correct. There is talk of establishing a permanent bail-out arrangement, and we, the United Kingdom, have a veto over that. We should use that veto to relieve ourselves of all liability under a mechanism that should never have been agreed. That is what my motion proposes, and the amendment fails to do so.

When the European financial stability mechanism was set up, we were told that there would be €60 billion in it, whereas €440 billion would be paid by the eurozone members. Yet in the case of every bail-out we find that the mechanism is used to the same level as, or even more than, the eurozone facility. We in the House and this country are being forced to pay for the mistakes of others, and only this House has the power to stand up, vote and say no.

The whole mechanism is illegal. Let us remember Maastricht and the “no bail-out” clause that the Germans insisted on. What has happened to that? Let us remember article 122 of Lisbon, which states that the mechanism is for natural disasters or other exceptional circumstances beyond member states’ control. Did not Ireland, Portugal and Greece decide to sign up to the euro? Portugal has barely grown at all as a country since it joined the euro, and it has done next to nothing to control its spending. I am afraid there is nothing exceptional about that, and nothing beyond its control. It is just using the mechanism, to which we should have said no, to make our constituents pay for its own mistakes.

[Mr William Cash (Stone) (Con)]

Does my hon. Friend recall that Madame Lagarde herself, the prospective head of the International Monetary Fund, said on 17 December last year on that very point:

“We violated all the rules because we wanted to close ranks and really rescue the eurozone”?

She was being very clear and telling the truth.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. Before the hon. Member for Rochester and Strood (Mark Reckless) responds, may I warn him that he only has three minutes to go?

[Mark Reckless]

My hon. Friend the Member for Stone (Mr Cash) is quite right.I hear that that lady is a good friend of the Chancellor, but I do not believe that we should put the debtors in charge of the bank. The IMF money, too, or 5% or so of it, is our constituents’ and taxpayers’ money. We should have an emerging market candidate to run the fund, and we should not allow the eurozone to continue to perpetuate a French-led IMF that nods through bail-outs with no restructuring and no devaluation. The markets know, and all of us know in our hearts, that bail-outs will not work.

The eurozone says that there will be a “soft restructuring”. In other words, when Greece, Portugal, Ireland or—who knows?—Spain cannot pay back what it has promised, the eurozone will say, “Oh, don’t worry about it, we’ll just roll it over.” In the City, they call that an extend-and-pretend policy. Such a policy was pursued in Japan for the whole of the 1990s, which then lost two decades of growth instead of dealing with the banks and recognising its insolvency. The European Central Bank should avoid that. Unless and until the ECB deals with that problem and understands that the assets that it has taken supposedly to back the loans are worth far short of what it currently assumes, the banks will not lend, because they do not know to whom it is safe to lend. The ECB should write those assets down and have that reckoning. The extend-and-pretend policy—the patching up and bailing out, and the throwing of good money after bad—is destined to fail.

Why are we supporting a currency that we very wisely did not join, after warning exactly what would happen? I ask Members of this House to stand up for their constituents. We should require—yes, require—the Treasury to vote against the use of the bail-out mechanism. If the EU does not agree to that, we should require the Treasury to use our veto over the permanent bail-out mechanism until we are extracted and removed from all liability. We should never have been liable for that mechanism. We know that it is unlawful and that it is not for our currency.

It is right that we stand up for our taxpayers and our constituents, who look to us as Members of this House to do so. They do not look to us to seek permission from those on the Treasury Bench, or to urge them to do something rather than require them to do something. Surely as Members of the House we are more than that. Surely our country is more than a star on somebody else’s flag. I urge all hon. Members to vote no to the Government-sponsored amendment.

--- Later in debate ---

[Kelvin Hopkins]

Throughout the period of the Labour Government, I put the views that I have put in this debate. I hope that I had some influence, but in the end the Government decide what they must. They will not necessarily do what Back Benchers such as me suggest. Nevertheless, I am on record as writing and speaking on such things many times in the past.

We must bring this crisis to a head. The way to do that is to say, “No more bail-outs. Let’s start recreating national currencies.” I have said that directly to some of our friends in Ireland, when members of the European Scrutiny have met Irish politicians.

[Mark Reckless]

Does the hon. Gentleman agree that subject to a request from Ireland and to the protection of UK depositors as against the ECB, we should consider extending our currency to allow Ireland to work with us? Under sterling, we could treat Ireland on an entirely equal basis.

[Kelvin Hopkins]

Ireland is a very special case—it is our next-door neighbour and we are Ireland’s major trading partner. Effectively, the Irish would do very well to join the sterling zone rather than the eurozone. That would mean their recreating the punt and choosing the value of it. I would like us to do a lot more to help our Irish colleagues, not simply because I have a large number of Irish people in my constituency, but because that would be a comradely and brotherly thing to do for a nation with which we have had great links for many centuries.

I once again express my support for the motion.