Eurozone Crisis

Debate between Mark Reckless and John Baron

Tuesday 15th November 2011 Westminster Hall

[Mr John Baron (Basildon and Billericay) (Con)]

Good morning to you, Mr Caton. In raising concerns about the UK’s liability to the eurozone bail-out via its contributions to the International Monetary Fund, I will ask various questions of the Minister. I will question the assumption that we always get our money back, whether the IMF’s policy will work and why the IMF should be getting involved at all.

That we are talking about large sums of money cannot be denied. Our liability through the European financial stabilisation mechanism totals some £6.5 billion. Our liability through the bilateral loan to Ireland exceeds £3 billion. Despite Government assurances to the contrary, it does not stop there. Our IMF liability to the Greek, Portuguese and Irish bail-out packages announced before May 2011 totals some £3.5 billion, and that does not include the latest Greek bail-out. Adding in our additional contributions, which are almost doubling—from some £10 billion to nearly £20 billion—it is obvious to all that we are soon talking some big figures. I do not think the Minister can deny—I shall welcome his intervention if he thinks otherwise—that some of the additional IMF money will be routed through to the eurozone crisis. Therefore, the Government’s claim that our liability stops with the EFSM and our bilateral loan to Ireland simply does not wash.

Let me be clear: I support the IMF’s work. IMF programmes can and do work under certain conditions. However, there are real risks to those IMF contributions routed through to the eurozone crisis.

The Government take great comfort from the fact that no country that has lent money to the IMF has ever lost that money. However, this recession is very different. Having been a fund manager in the City of London, running pension funds, charity money and funds for private clients, I know that it is always dangerous to say, “This time it is different,” but economic history makes that clear. Recessions since the great depression have always been de-stocking events, where the problem has been a fall in demand. In response to that, the Keynesian approach of stimulating the economy through additional demand—if necessary, by borrowing—has by and large done the trick. This recession, however, is a deleveraging recession, which has been built on excessive debt. Governments and consumers have taken on too much debt. Demand is not the issue; excessive debt is. The only remedies for this recession are to pare down the debt and attain greater growth through increased competitiveness.

I worry that the Government are underestimating the scale of the debt. There is £300 billion-worth of Italian debt to be rolled over in the coming 12 to 18 months. The eurozone went to the Chinese, who have massive reserves, but the Chinese did not want to know. The fact that the IMF wants an additional £10 billion from us clearly suggests that it does not have our original £10 billion. The Government would be foolish to ignore the omens. Does the Minister accept that there is at least some risk that the UK could lose some of the money routed through the IMF to the eurozone crisis? Again, he is welcome to intervene if he so wishes.

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

My hon. Friend refers to £10 billion and another £10 billion. I understand that when the issue was discussed in the Joint Committee on Statutory Instruments, the Minister said that, broadly speaking, our liability to the IMF would be £20 billion. However, I understand that another funding source exists that may mean that our liability is already £40 billion. Can my hon. Friend enlighten us?

[Mr Baron]

My hon. Friend is right to raise that issue. There is an additional liability that we know relatively little about, because the Government have not come to the House to explain it. I hope the Minister will take the opportunity in this debate to address that concern. Is that true? What is the extent of the liability? How would it be called upon in the event of certain contingencies?