Eurozone

Michael Fallon Excerpts

Monday 10th October 2011 Commons Chamber

[Mr Osborne]

I am not sure that the asset purchase facility was the enormous success that the hon. Gentleman implies. It probably did do a good job—again, I defer to the views of the Chancellor at the time, who would have seen the data closer up. The asset purchase facility helped to stop the collapse in the corporate bond market at the time, but it never led to the big increase in lending that the previous Government hoped it would. The Bank of England did not make use of the £50 billion facility that was made available. Although the facility remains, to date the Bank has made use of only around £1 billion. Instead of revisiting the theology, as it were, of who is responsible and the role of the Bank, my view has been that in order to maintain the proper division of responsibility between the Bank and the Government, who are accountable to Parliament, the Government should undertake credit easing operations with their own balance sheet, and that is what we are working on at the moment.

[Michael Fallon (Sevenoaks) (Con)]

What was the point of the European Banking Authority conducting two rounds of stress tests that excluded any serious test of banks’ exposure to sovereign debt? Surely it is in the interests of eurozone Governments to have such exposure made more transparent and to start facing up to how to tackle it?

[Mr Osborne]

My hon. Friend makes a very good point. We repeatedly argued that the stress tests should be tougher and more credible, but there were strong vested interests that did not want to see that happen and did not want to confront some of the problems in their own banking system. They are now having to confront those problems, however. The fact that Dexia passed the test, and that when it identified a capital shortfall it was in the low billions of euros across the entire European continent—given that tens of billions of euros were required to deal with the Irish problems that occurred around Christmas—demonstrates that those tests were not credible enough. To be fair, I do not think this is an EBA problem; it is more a problem with the membership of the EBA, but the association is now, with our support and encouragement, finally conducting what I think will be a much more credible set of assumptions for the European banking system.