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

Michael McCann Excerpts

Monday 3rd September 2012 Commons Chamber

[Mr Cash]

We have probably gone through that in as much detail as is required or necessary on this occasion. My point is that it is not the case, as the Foreign Secretary and the papers to which he is religiously sticking state, that article 122 arrangements for the EFSM are no longer needed. That is not only disingenuous, but verging on something much worse. It is not just a question of them not being needed, but I will leave it at that for the time being.

The real question is on the problems that will emerge in practice from the continuous stream of payments and bailouts, putting heads in the sand and the complete abnegation of reality. It is clear—the most recent edition of The Economist indicates as much—that the euro will turn into a soft currency with high inflation. The general secretary of the CSU, the Bavarian party that makes up part of the coalition in Germany, accuses the European Central Bank—this is a far worse accusation than any regarding the EFSM—of becoming

“the currency forger of Europe”.

There are profound reasons for that accusation, which is made by one of the most senior members of the German coalition. I could spend a fair amount of time going through technical and legal points on the European Act 2011, the exemption conditions and the opinion of the Foreign Secretary, but the issue is much more serious than treading through the maze of legalities created by the Act. This is about the substance of the manner in which the European Union functions and fails.

I shall come to the attitudes of German voters later, but it is important that people throughout Europe recall, as Germans do, what happened in the 1930s and subsequently. The economy’s implosion and high inflation—evidence that the economy was completely out of kilter with reality—ultimately led to disaster and the emergence of Hitler from the Weimar republic. Those things are brought to mind by the CSU general secretary’s accusation that the ECB is becoming

“the currency forger of Europe”

to provide the scale of bailouts contemplated under the Bill and the treaty. Massively high inflation is caused by printing money when a country does not have it on the basis of how it runs its economy. No wonder only 24% of more than 1,000 German voters polled had confidence in the short-termism that such measures represent.

Angela Merkel is certainly bidding for a new European treaty—it has not been received with enthusiasm, but the treaty issue has not gone away. In December, there is a fair chance that she will come back for a new treaty that will effectively create yet another step towards political union. We know perfectly well—it is no longer taboo, although I have been saying it for the best part of 25 years and it is now reality—that Germany is now moving further and further towards political union, which it will largely dominate, although more and more Germans are against the bail-outs, even to the point at which, as The Economist suggested last week, Mr Weidmann is now seen increasingly as Angela Merkel’s Thomas à Becket, having been one of her most loyal supporters. This is a very serious matter, but the shadow Foreign Secretary simply does not see it. I asked him whether he agrees with Angela Merkel or with Mr Weidmann because that is what is at the heart of this Bill.

The worst of it is that in fact it is not going to work anyway. Mrs Angela Merkel knows that Mr Weidmann is right on economics, but she has her own agenda of political union as the centrepiece for the destiny of Germany, as she has repeatedly argued. It is not just Germany. Spain is rapidly following Greece over the euro cliff, with Italy not far behind, not to mention the continuing problems in Portugal, Ireland, Cyprus and a stack of other countries. It is even now becoming a problem in respect of the individual provinces in Spain—Catalonia, Valencia, Murcia and other regions are lining up while Spain dives into a double-dip recession. There simply is not the money to pay for the catastrophe that the European economic system has created.

[Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab)]

Does the hon. Gentleman not think it odd that we should lecture the eurozone about double-dip recessions when we are in one ourselves, created by the Government whom he purports to support?

[Mr Cash]

That is a very nice little intervention, because the reason we are in a double-dip recession—in so far as we are—is, first, the massive deficit that the hon. Gentleman’s Government left us with. Secondly, for reasons that I will explain, it is because of the massive deficit—as I said to both the Foreign Secretary and the shadow Foreign Secretary—that the European Union has with us. We are in such incredible deficit with the other 26 member states that it will be impossible for us to gain out of the 50% of our trade with them the growth that is needed to enable us to come out of recession and grow our economy.

I was disappointed, to say the least, that the problems with the eurozone were not even touched on in the exchanges between the Chancellor of the Exchequer and Andrew Marr yesterday, when everybody knows that the failure of the UK economy is partly because of the deficit we inherited, but also because we cannot grow with a bankrupt European Union, with the exception of Germany. Indeed, half of our deficit with the other 26 member states is our deficit with Germany alone. So we have to be conscious that this is a real problem that needs to be resolved, and this Bill will do almost nothing except damage our economy.

Greece is currently in the throes of an EU-IMF economic investigation. One can almost hear the words of endorsement from the EU and the IMF before they have reported. I will be very surprised if they do not try to find some way to muddle through. As with the Bill and, I am afraid to say, the Government’s policy on Europe, real EU reform is off the agenda, as is a referendum.

--- Later in debate ---

[Kelvin Hopkins]

There is a case that we still have not depreciated our currency enough, but demand for our exports is falling because there is deflation elsewhere, particularly elsewhere in the EU. We should consider the history of devaluations; the proper ones have invariably been very beneficial. After the escape from the exchange rate mechanism in 1992, the economy bounced back strongly and many Conservative Members would agree that, had they managed to stay in office for three or four more years, people might have realised that that big devaluation was driving economic growth and falling unemployment. We reaped the benefit of the collapse and what happened in the ERM, particularly in my constituency, which was the epicentre of housing repossessions and negative equity, which led to my having one of the largest swings to Labour in the country, simply because of the ERM.

I was one of the few people who wrote about economics in 1990 who were saying that the ERM would be a disaster. I predicted—I surprised myself, indeed—the precise course of that experience and said what would happen in the end: interest rates would go through the roof and eventually we would come out of the ERM and devalue, which we did. However, that is not the point that I am making tonight.

I agree with the hon. Member for Stone (Mr Cash) on many things, but I do not agree with him on economic policy. I doubt that many Conservative Members read the New Statesman, but in the last week or two it has featured a series of economists who initially signed a letter of support for the Government, but are now recanting, saying that they made a mistake and should not have called for deflation and cuts. They are implying that that situation ought to be reversed. I agree with them, and I was one of the few in the House who absolutely and profoundly disagreed with the Government from the beginning, quoting Paul Krugman and others, who said that they were going in precisely the wrong direction, towards the savage deflation that led to the 1930s’ depression.

We are in danger of going in that direction now. Countries have to find a way to expand their economies, and they will not do that when they are stuck in stupid arrangements such as the euro. We must have a deconstruction of the euro. There is much talk of an uncontrolled crash, but currency zones can be deconstructed rationally. When the Soviet Union collapsed, all the countries of the ex-Soviet Union created their own currencies. That was done fairly straightforwardly. When Slovakia and the Czech Republic separated as Czechoslovakia broke up, they created their own separate currencies. That worked. It can be done in a controlled and not-too-difficult way. I shall not say that it will be that easy, but it is not impossible and there are examples of such a thing happening. I suggest that, initially, Greece, and perhaps one or two other countries, ought to quit the euro and recreate their own currencies. That might mean freezing banks for a few days and so on.

[Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab)]

I am following the argument closely, but can my hon. Friend explain himself? He is talking about countries that came from an impoverished state, so the only way was up. Surely the problem with the eurozone is that we are talking about countries that have experienced high standards of living. Ultimately, any break up would mean that those would go down.

[Kelvin Hopkins]

Standards of living ultimately depend on productivity. If a country produces wealth it can consume wealth. If those countries get into a position whereby they can start to rebuild their economies and expand growth—have more people going on holiday to Greece, for example—they will bounce back and become better off again. I have said many times, in writing and in the House, that strong currencies derive from strong economies, not the other way round. If a strong currency is imposed on a weak economy, it will drive that economy down.

Finding a way to get that economy to grow, which might initially mean a devaluation, means that the currency will ultimately strengthen. Indeed, the 1944 Bretton Woods conference made arrangements that allowed for countries to depreciate or devalue their currencies as necessary. Indeed, if Keynes had had his way, he would have had countries required to appreciate their currencies. I suggest that Germany ought to be appreciating its currency and not be allowed to get away with what it has done for decades, which is to undervalue its currency. That has meant that it has had a competitive advantage against every other nation in the EU, and indeed in Europe.

If the euro were to be deconstructed, a major consequence would be the new deutschmark appreciating quite substantially. There are now worries even in countries such as Denmark and Finland. Finland, which is in the euro, would be forced upwards to a currency valuation that it found uncomfortable. The Danes have chosen to peg their currency to the euro. They might think again about devaluing, but Germany has, effectively, an undervalued currency relative to all the other countries of Europe, which is a fundamental component of its economic success. That is an unfair way to operate and we ought to address it.

I am pessimistic about the future of the eurozone. At the moment, there is a kind of “quietism”. People in the EU are trying not to talk about all the terrible things that are going on, but as I understand it from my friends on the continent, what is effectively a giant building society in France was last week on the verge of having a run—going bankrupt and people taking their money out. The French Government effectively nationalised it and pushed €90 billion into it to save it. That has just happened to President Hollande, but people do not want to talk about it too much because they know that there are many other problems of that kind. There is a Franco-Belgian bank into which €50 billion has been pumped to keep it alive. Indeed, even German banks have lots of supposed assets that are not really assets; they are IOUs that will never be repaid. If I claimed that people owed me £100,000, but I knew that they were all poor people and would never be able to pay me, that would not be an asset of £100,000, but a worthless IOU. A lot of banks are stuffed full of worthless IOUs; that is the reality. It is only when countries start to manage their economies effectively on a national basis, with an appropriate currency value and appropriate interest rates, that they will start to recover. Many of the poorer countries will never be able to compete within the euro, and ought to get out fairly soon and re-establish their own currency.

Take the case of Ireland; I have many Irish constituents. The reality is that Ireland is part of the British economy more than anything else. It should be part of the sterling area, but it is overvalued relative to sterling. If it recreated the punt, devalued and came into line with sterling, Ireland would benefit enormously, because we are its major trading partner. I hope that will happen, because it will benefit many of my Irish constituents and their relatives in Ireland. I look forward to common sense ultimately prevailing, but I have a feeling that we will go through an awful lot of pain before that happens.

--- Later in debate ---

[Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab)]

Hon. Members on both sides of the House will be delighted to know that I do not intend to quote any legislation, which the hon. Member for Rochester and Strood (Mark Reckless) has just gone into in some detail. I support the Bill and I believe the European stability mechanism is necessary.

I agree with my right hon. Friend the Member for Paisley and Renfrewshire South (Mr Alexander) that the need for action is beyond doubt, but I certainly do not delude myself that the two clauses in the Bill will paper over the massive crack or the massive problem that we have in Europe. If I may misquote Groucho Marx, there is no sanity clause, which is sorely needed. Yes, we need stability for Europe’s banks. We need to correct the balance between austerity and growth, and we need a bigger firewall to protect Europe from the economic problems that it faces.

One aspect that has not been touched on, or has been touched on but not in the way that I would put it, is the north-south European disconnect. For part of my previous life, I was a trade union official and negotiated with colleagues in various parts of the European Union. There was always a disconnect between those in the north and those in the south. The hon. Member for Camborne and Redruth (George Eustice) put that in a different way, but there was always a necessity for members attending meetings from the north to get to a solution, agree a way forward, and move on that solution and that way forward, whereas the tendency for our southern neighbours in Europe was always to try and put off the day for a decision to be made, circumnavigating the need to make a decision. It may have taken several meetings to get there, but we eventually reached a conclusion. That north-south disconnect in Europe has not been properly addressed by leaders across Europe. It is something that we have to look at very carefully.

I also think that Germany needs to step up to the plate in a significant way. We have heard from more than one Member this evening that Germany gets all the benefits of the euro, with regard to how its currency is valued, but does not seem to want to make its contribution to the solution, so that debate must be resolved, first in Germany and then at the eurozone level.

Another element that must be looked at carefully is the balance between austerity and growth. When I intervened earlier on the hon. Member for Stone (Mr Cash) he replied—surprise, surprise—by putting his hand in his back pocket and pulling out, “Well, it’s all your fault because the Opposition gave us this massive deficit.” I do not want to go into all that again, other than to say that I am sure that he was not suggesting that when the previous Government bailed out the banks, which prevented us moving from a recession into a depression, the hon. Members now on the Government side of the Chamber did not support that necessary action. If I may paraphrase a gentleman I heard speak last week, the former Governor of Florida, the Republican Jeb Bush: “Don’t blame us for mistakes made on your watch.” That was a Republican talking to the Democrats in America. The coalition Government must recognise that since they took over our borrowing has increased by over £150 billion and that, therefore, there is at least an arguable case that their balance between austerity and growth might be wrong and might need to be recalibrated.

The hon. Member for Cheltenham (Martin Horwood) asked the hon. Member for Stone and the Eurosceptics how we will solve this problem if not in this way, but answer came there none. I do not agree with the analysis of the hon. Member for Stone of how Germany got into its problems in the 1930s because my recollection, as a former student of history, is that it was the reparations imposed at the treaty of Versailles that created Germany’s inflationary problems and that they were not connected in a wider way to Europe, aside from the fact that it was the allies, of course, who forced the treaty on a defeated Germany after the first world war.

I will put the question again: what do those who do not support this proposal think will happen if the eurozone is unceremoniously collapsed? People have predicted—I feel that it is a proper prediction—chaos, carnage and colossal damage on our streets. What would the streets of Europe look like? Much more has to be done in the euro area to resolve the crisis. There will be no painless solution but, just as the bank bailout prevented our country moving from recession into depression, the support of the ESM can and must be a starting point for a more permanent solution to the problems of the euro area.