European Council

Michael Connarty Excerpts

Monday 24th October 2011 Commons Chamber

[The Prime Minister]

I can absolutely give my hon. Friend that assurance. If he looks at what we have achieved in a relatively short time—getting out of the bail-outs, getting agreement among the big countries for a freeze in the European budget this year and getting the European Commission to focus on deregulation rather than regulation—he will see that they are all important. I agree with his first point. A lot of companies come and invest in Britain not just because of our economic strengths, our flexible labour markets and all the rest of it, but because of access to the world’s biggest single market, which is important for investment into Britain by American, Japanese and other firms, creating the jobs and wealth that we need.

[Michael Connarty (Linlithgow and East Falkirk) (Lab)]

With some financial analysts saying that banks holding sovereign debt might have to take a 25% to 60% write-down on that, can the Prime Minister elucidate for the benefit of the House what he means by a “financial firewall big enough to contain any contagion”, and say whether he thinks that the IMF needs to be involved and that the problem cannot be solved in Europe?

[The Prime Minister]

There are two issues if we are going to see a decisive resolution of the Greek situation. Obviously we need a recapitalisation of Europe’s banks, so that they have sufficient capital to withstand the losses that would otherwise affect them. Credible stress tests are crucial to that: there has been round after round of stress tests in Europe, but they have not been robust and credible enough. I believe that that has now been secured, not least because of my right hon. Friend the Chancellor’s work in the ECOFIN meeting. The second thing we need—the firewall; what I called the “big bazooka”, which the shadow Chancellor referred to the other day—is to ensure that we have a mechanism big enough to help to stop contagion to other countries. There will be discussions in the eurozone and outside it about how big that needs to be, but the answer is: bigger than is currently proposed, and they need to keep working on it.