Eurozone Crisis

Peter Bone Excerpts

Thursday 3rd November 2011 Commons Chamber

[Mr Peter Bone (Wellingborough) (Con)]

(Urgent Question): To ask the Chancellor of the Exchequer to make a statement on the euro crisis and its implication for the United Kingdom.

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

Hon. Members will be aware of recent developments in the eurozone. My right hon. Friends the Prime Minister and the Chancellor of the Exchequer are at the G20 meeting in Cannes as we speak, and we understand that the Greek Cabinet is due to meet imminently as well. We will not be providing a running commentary on the market and media speculation of those events, but I can reassure the House that the Prime Minister will be making a statement to the House on Monday.

What is clear, however, is that the instability in the eurozone continues to have a chilling effect on the rest of the European, the UK and the entire global economy. As the Chancellor has said, a resolution to that crisis is in our vital national interest. It is vital that the eurozone members reach a solution that is coherent, comprehensive and lasting. Last week, European Heads of State reached an outline agreement that laid out a blueprint to resolve the crisis. It was a three-pronged strategy. First, weak European banks should be recapitalised. Importantly, in the assessment of the European Banking Authority and our own regulatory authorities, no British banks require additional capital, which is an important expression of confidence in the country’s banking system.

Secondly, the unsustainable position of Greece’s debts should be resolved. In particular, a headline agreement was reached to reduce the Greek debt to gross domestic product ratio to 120% by 2020, through an additional €30 billion of euro area money and private holders of Greek sovereign debt being asked to accept a nominal write-down of 50%. Thirdly, eurozone member states should reinforce the bail-out fund to create a firewall, either by using the fund to insure new debt or by attracting public and private investors through a special purpose vehicle. Both mechanisms are designed to have the capacity to leverage around €1 trillion. This package demonstrated the commitment of the euro area member states to stand behind the single currency. It was progress, but more details are needed on how it will work.

Right hon. and hon. Members will be aware, however, of developments in Greece since that agreement was reached last week. There is no doubt that the decision by the Greek Prime Minister has added to the instability and uncertainty in the eurozone. Ultimately, it is up to Greece to make its own decisions, but it is critical that all parties stick to the deal that was agreed last week. That agreement is an important part of the economic recovery here in the UK, across Europe and across the global system. If the euro area collectively does not decisively sort out its ongoing problems, the uncertainty that that creates and its impact on global confidence will continue to undermine economic recovery across the world.

This is uncertainty that the global economy can ill afford, and uncertainty that has been a drag on all our economies for months. We will continue to urge our euro area counterparts to press for a decisive resolution of the crisis at the G20 at Cannes over the coming days, but at no point have we committed any British taxpayer money—not to Greece, not to the bail-out fund.

I want to address directly the question of UK commitments through the International Monetary Fund. Britain has always been one of the largest shareholders in the IMF, and there may well be a case for further increasing the resources of the IMF to keep pace with the size of the global economy. We stand ready to consider the case for further resources if necessary, but let me be clear: we are only prepared to see an increase in the resources that the IMF makes available to all its members. We would not be prepared to see IMF resources reserved only for use by the eurozone. The IMF can use its expertise to help administer its fund, but it can only lend to countries with a programme for adjustment. A potential special purpose vehicle for the euro area bail-out fund does not fit that bill.

Last week’s announcement, however, was only the first step to resolving the immediate crisis. In the long term, it is vital that the euro area members follow the remorseless logic to closer fiscal union. It is equally vital that we work together to improve competitiveness in the peripheral countries of the eurozone, as well as the overall competitiveness of the European bloc in the world economy.

The ongoing instability in the euro area is a vindication of the Government’s decision to get ahead of the curve, cut our own deficit and improve our economic competitiveness. Our decisive action to cut the deficit means that the UK has stayed out of the storm, and is the reason we have gilt yields close to the likes of Germany, rather than similar to those of Greece, Italy or Spain. We will encourage our euro area counterparts to do the same over the coming weeks. As I said, the Chancellor and Prime Minister are in Cannes. It is vital that leaders commit in Cannes to increase confidence in the global economy, agreeing the detail of the euro area rescue. The Prime Minister will update the House on Monday.

[Mr Bone]

I thank you for granting this urgent question, Mr Speaker, and the Minister for his full response.

It has long been argued by Conservative Ministers that retaining the pound and allowing it to float in line with market conditions has enormous benefits for the British economy. If the British economy is having a difficult time, the value of the pound will fall, which makes exports cheaper and foreign companies’ imports more expensive, thereby increasing growth, jobs and prosperity in the United Kingdom. Equally, Conservative Ministers have always argued that the Bank of England’s ability to set UK interest rates allows the country to encourage growth in a recession and control expansion in a boom.

Both those powerful economic weapons are being denied to Greece, as it is in the euro straitjacket. Will the Minister explain why it is the Government’s policy to deny Greece a way out of its economic crisis by allowing it to withdraw from the euro and re-establish the drachma? Does he think it was a mistake for the German Chancellor and the French President to increase the crisis by making the Greek referendum on the bail-out a referendum on whether Greece remains in the euro? Does the Minister agree that the Greek Government were right to consult their people on the proposed austerity measures, so that if the country votes yes, they will have a mandate to drive through the reforms? What other countries does he think would come under market pressure because of the instability of the euro? Were the President of France and the Chancellor of Germany right to say that they wanted to save the euro at any cost, rather than putting the interests of Europe first? Finally, do the Government have a comprehensive contingency plan for when the euro collapses?

[Mr Hoban]

I am grateful to my hon. Friend for his question and his response to my statement. He is absolutely right: it was right for this country to stay out of the euro. That is the settled position of the coalition Government, and it is the right position to adopt. However, that was a decision that the people of this country made. It was not made under duress from other countries; it was a free choice that we made. On that basis, it is better for the Greeks to make their own decisions than for us to offer them advice.

My hon. Friend asked about contingency planning. He would expect every good Government to have plans in place to cover a range of eventualities, and this Government are well prepared for any eventuality.