European Council

Debate between Philip Hollobone and John Baron

Thursday 8th December 2011 Westminster Hall

[Mr Baron]

As I said at the start, I do not buy the repatriation of powers. I want a fundamental renegotiation of our relationship with the EU based on free trade, competition and growth. Such a renegotiation would recognise the fact that we want good relations with our EU neighbours, and we want good trade relations in particular, but we recognise that we need to engage better with the faster-growing economies throughout the world. In many regions of the world—those of the BRIC economies—growth rates are so much faster. This is not a little Englander approach; it is a globalist approach that recognises that we need to engage better with those faster-growing areas.

[Mr Philip Hollobone (Kettering) (Con)]

I am hugely enjoying my hon. Friend’s speech; he is making some excellent points. Does he agree that in 1980 the EU’s share of world trade was some 30%, but by 2020 it is likely to have fallen to 15%? In other words, it will have halved over a period of 40 years, yet we find ourselves increasingly brought together with part of the world that will grow more slowly than the BRIC economies.

[Mr Baron]

My hon. Friend makes an excellent point. There is much talk of Germany winning market share, but one forgets that Germany has benefited from an artificially weak currency, to which the periphery nations have contributed. Germany has had a very strong manufacturing base allied to a weak currency, which has made for heady growth, but if we take Europe as a whole, it is falling behind. Many people do not recognise that.

I worry that the Government have ruled out the idea of a referendum. I think that is a mistake as we go into a summit, because it cuts off a key negotiating ability. I also worry that we seem to be saying we do not want a two-speed or two-tier Europe, but on the other hand we are trying to join in the chorus of “we must save the euro”, which can only mean closer fiscal union, which can only result, as Angela Merkel has readily acknowledged, in a two-tier, two-speed Europe. It is nonsense and a contradiction. Anybody who believes that closer fiscal and political union will not fundamentally or materially affect our relationship with the EU is living in cloud cuckoo land.

Before I finish, I will attempt to knock down one or two myths surrounding the debate. The first myth is that we must save the euro. In my 15 years in the City running hundreds of millions of pounds for charities, pension funds and private clients with some very large fund management groups, I have never heard so much economic clap-trap. The whole concept to begin with was flawed. The idea that we can bind divergent economies into a single currency without full fiscal union was and remains a mistake. Not only the concept but the solution is flawed. The problem is that we are not addressing the core issue of competitiveness. We have Governments spending too much relative to their means.

This recession, unlike all other post-war recessions, is built on debt. It is a deleveraging, not a destocking, recession. Accordingly, we have to grow our way out of that and reduce our debt. We cannot, as we all know, borrow our way out of debt. The solution does not fit, so I am not convinced that the solution put forward by the present eurozone leaders will work, anyway. However, let us give them the benefit of the doubt. Let us say it buys time. The problem is that by cutting off the option of devaluation—put that and the fact that the solution does not fit to one side for a second—even if it buys time, we are making the austerity packages much worse.

I have previously broached the fact that there have been some 80 situations in which countries have left currency unions since the second world war and have benefited from the growth that has followed. We saw it in our own case when we exited the exchange rate mechanism. By binding countries into a single currency, we have to make the austerity packages more severe, because we are ruling out the option of devaluation, which would increase competitiveness. The eurozone leaders do not seem to understand that. If there was an orderly break-up of the euro, certainly for the periphery nations, the Germans would still want to sell their cars and the French their wine. Believe me, life would go on.

Many say that the banking system could not survive the write-off of the debts. That point was made earlier. However, the markets have already discounted the debt in many of these countries by 60%. It would not come as much of a shock if there was a 50% write-down. In many cases, that would represent a 10% uplift by the banks themselves. This is an economic point that has not been widely acknowledged and accepted. The markets have already downgraded the debt, so this will be a downgrade instituted by politicians. Look at what the markets themselves are telling us.

Nobody has been able to quantify or substantiate why it would create economic mayhem if we did not save the euro. Siren voices also suggested that if we left the ERM something similar and awful would happen. Actually, almost to the day, our economic recovery kicked off.

Finally, if the eurozone wants to crack on and create closer fiscal union, that is fine. That is not, or should not, be mutually exclusive to our objective of wanting to negotiate a different and fundamentally new relationship with the EU. They are not mutually exclusive. Many commentators seem to suggest that by wanting to renegotiate the relationship, we are breaking up or being awkward about what the 17 eurozone members want to do. That is not the case. If they want to take that path, it is up to them, but their taking that path should not restrict us.