William Cash
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Loans to Ireland Bill
William Cash Excerpts(13 years, 11 months ago)
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Mr Osborne
I said in an earlier statement to the House that I was seeking to do that, and I had hoped that hon. Members were paying attention to what I said at the time.
The legislation that we shall pass today will allow the UK to be ready in the new year to meet its commitments to one of our closest international partners. As has been noted, the legislation before the House is narrow in scope—it is explicitly a Loans to Ireland Bill—but it is still enabling legislation. It sits alongside the actual loan agreement, which sets out in detail what we will offer Ireland. To ensure that Members have as much information as possible available to them for today’s discussion, a summary of the key terms of the loan agreement, which was agreed with the Irish Government only this morning, has been available in the Vote Office for more than an hour now.
Mr Osborne
If my hon. Friend will allow me, I will make a bit of progress and then of course take some further interventions.
In my remarks today, I intend to address both the substance of the legislation and the loan agreement, but before that let me briefly say something about how we got here. Over the course of this year, it became increasingly clear that the situation in the Irish economy was unsustainable. Their sovereign debt markets had effectively closed and had little prospect of re-opening. Ireland’s market interest rates had risen to record levels, and Irish banks had become almost wholly reliant on central bank funding to maintain their operations, with no obvious prospect that that was going to change. This situation simply could not go on. We had been monitoring the situation for many months and had engaged in confidential discussions with our partners in the G7 and at ECOFIN about possible solutions.
Over the weekend of 20 November, Ireland’s Prime Minister made a formal request for international financial assistance. The UK, alongside the International Monetary Fund, the EU, the eurozone and some other member states—Sweden and Denmark—made an agreement in principle to take part in putting together an assistance package for Ireland. Since then, the various interested parties have been working round the clock with the Irish authorities to put together a package. Officials from the British Treasury have been in Dublin in recent days ensuring that our interests and concerns were represented, and I want to thank them for their hard work. At the end of November, Ireland agreed with the IMF and the EU a three-year financial assistance package worth €85 billion.
Mr Cash
The document to which my right hon. Friend just referred is “for information purposes only” and is clearly not intended to be construed as part and parcel of the Bill. So can he explain why in the document the “conditions precedent” to the arrangements interweave the so-called “bilateral loan” with the European financial stability mechanism, and why an attempt is then made to bypass that by referring to the “Governing law” as “English law”?
Mr Osborne
I am going to discuss some of the conditions attached to the loan. The particular condition that my hon. Friend refers to ensures that the UK is protected if other parties to this international agreement change their arrangement with Ireland in some way that materially affects our ability to be repaid. That condition gives us an ability at that point to step in.
Mr Osborne
I know that my hon. Friend is assiduous on these points, but I think that on this occasion he is not correct. This is simply a fall-back mechanism for us to say that if Ireland in some way renegotiates its loan from the eurozone, from the EU or from the IMF, it is a condition of our loan to Ireland that we can step in at that point and examine our situation. That protects the British taxpayer and has absolutely nothing to do with European law or anything else; it is simply there to make sure that other parties to this international agreement must have due regard to what they are doing, and how that might have an impact on the ability of the British taxpayer to be repaid.
Mr Osborne
My hon. Friend is pre-empting my speech. I shall get on and explain exactly what those two subsections mean.
As I said, there is no expectation that we will have to make further loans to Ireland in the future. Subsection (4) is intended to prevent an increase in the size of the loan, unless an order is made by statutory instrument, but because the loan is denominated in sterling, a mechanism is needed to accommodate potential changes in the exchange rate in the period between the publication of the Bill and the signing of the loan agreement—that answers my hon. Friend’s point—which could happen in a matter of days. This is not about the exchange rate risk over the coming years—that risk is borne by Ireland—but merely a mechanism to deal with the fact that we are publishing the Bill before we sign the loan agreement, for the reasons that I set out earlier.
The Bill allows the Treasury, under subsections (5) to (7), to make an order once the Bill is in force to increase the limit, as long as that is done solely to take account of exchange rate fluctuations between now and 30 days after Royal Assent, without further Parliamentary procedure.
Mr Cash
I am sure that my right hon. Friend will understand my saying that it would have been so much simpler if what he has just said had been specified in the Bill, instead of a blanket wording referring to substituting a greater amount. We would have then known that that was only intended to allow a margin of error depending on currency fluctuations. Subsection (4) is absolutely clear that there is no restriction.
Mr Osborne
My hon. Friend will be very focused on what I am about to say, so if he does not mind I shall make a little progress, and then I shall be happy to take an intervention.
Let me turn briefly to the arrangements for a permanent stability mechanism for eurozone economies. The European Council this week is expected to discuss the matter. Both the Prime Minister and I are very clear that when it comes to putting in place a permanent mechanism, the UK is not part of the eurozone and so will not be part of that mechanism. The president of the euro group has accepted that the UK will not be part of the permanent stability mechanism, and that the European financial stability mechanism, which the previous Government agreed in May and of which we are part, will cease to exist when that permanent eurozone mechanism is put in place.
We will seek to bring to an end the use of the mechanism established in May for the resolution of sovereign debt problems. It was established under article 122 of the Lisbon treaty and originally intended to provide support for member states following natural disasters. European Finance Ministers, including my predecessor, chose to apply that article in May to deal with the eurozone crisis at that time, but that temporary solution should not become a permanent way of doing things, and the time has now come for the eurozone to put in place its own mechanism for dealing with the imbalances in the eurozone. That needs to be part of a comprehensive solution whereby countries address their own problems more decisively, including in their banking systems. We in Britain have shown the way.
Mr Osborne
My hon. Friend makes a very good point. There was a debate—it was pretty widely reported, so I am not betraying anything that was not read by everyone throughout the world—about whether to address the solvency issues, and whether there should be a contribution—or a haircut, to use the jargon—from senior debt holders in the banks or, indeed, sovereign debt holders. The international community’s view, with which we absolutely agree, is that such a contribution risked a very serious contagion that might spread through many different banking systems, not just those of the countries to which my hon. Friend refers. So the decision was taken not to require a private sector bail-in from senior debt holders in the banks or, indeed, sovereign debt holders.
As part of a comprehensive solution, the eurozone needs to come to a rapid conclusion about its mechanism, draw a distinction, as it has sought to, between existing debt and potential future-issued debt, create a credible mechanism and work out how a single currency zone that does not have a single fiscal policy or a political union will deal with its imbalances.
Mr Osborne
I see the speed with which my hon. Friend leaps to his feet at that point, but I shall take his intervention in a moment.
The eurozone needs to address that situation, and we need to ensure that it gets it right, because that is absolutely in our interests. Individual countries also need to address their problems. Portugal has a long-standing problem with its economic productivity, which the Portuguese Government are determined to address. The Irish banking system has caused enormous problems for the Irish Government, who are now addressing that. In a bipartisan debate, this is a slightly partisan point, but I think that the UK has demonstrated over the past six months that, by its own efforts, a country can earn market credibility, improve its credit rating and improve international confidence in its economy. We need the eurozone to sort out its mechanism, but individual countries in Europe also need to take decisive steps to deal with the particular problems that their economies face. Let me give way to my hon. Friend the Member for Stone (Mr Cash), and then I must conclude to allow others to speak.
Mr Cash
I have put a number of questions, as yet unanswered, to my right hon. Friend on that very issue, but I am glad that he has given, at any rate, a partial answer to one of them. The mechanism’s transfer from what appears to be an unlawful basis in article 122 of the Lisbon treaty to the new proposals under article 136 will involve only the eurozone and represent an important step in the right direction. Does my right hon. Friend not accept, however, that much could happen over the next two or three years, between now and 2013, while the mechanism in which my right hon. Friend’s predecessor engaged, and which I believe to be unlawful, continues? We could be locked into a Portuguese or a Spanish black hole. We do not know yet, but there is a danger.
Mr Osborne
First, I am dealing with the situation as I found it, and as I found it we were committed to that mechanism under qualified majority voting, but I am trying to extricate us from that. Secondly, the permanent arrangements might come into play sooner than 2013. That is a subject for discussion at the European Council, and, certainly as far as we are concerned, the sooner we get on with it, the better. I am doing everything I can to ensure that the UK is extricated from the commitment that was entered into, and we are making good progress.
Mr Cash
When the shadow Chancellor says, as the Chancellor said, that the process was triggered by a qualified majority vote, I am sure that he would agree that that is not strictly true, because it resulted from a request by a member state. The final solution or arrangements are made by virtue of a qualified majority vote at the end. That is a qualification, but it does not alter the fact that, on the basis it was explained to us, article 122 was almost certainly unlawful and the use of article 136 would have been a better route. However, we appear to be entrapped into article 122 for the current purposes.
Alan Johnson
I believe that the hon. Gentleman will seek to address that in his amendment to clause 3, which we will discuss later. On the specific issue, there is no doubt that the mechanism was decided by qualified majority voting. All 27 European member states were part of that. I know from experience of negotiating in Europe over many years that it is a pretty turgid process and one has to be on one’s toes. My right hon. Friend the Member for Edinburgh South West can speak for himself, but I think he got a very good deal for this country on Greece.
The Chancellor must take responsibility for the deal that he has negotiated and not try spuriously to blame his predecessor, as he did again in his evidence to the Treasury Select Committee on 8 December. He had a choice about whether the UK should contribute to the Irish rescue plan. In principle, he has made the right choice, but before us today is a hastily drawn-up Bill that does not set out the terms of the loan, the interest rate or the repayment schedule. Colleagues from all parties will want to explore and probe those matters in Committee, and we particularly want to get to our amendments on clause 2, so a goodly proportion of the time available to us this afternoon may be better spent on that. It is therefore not my intention to detain the House for long on Second Reading.
Alan Johnson
No, I will not give way—perhaps later.
I am also curious about the following piece of distorted logic. In the Treasury Committee, the Chancellor said that it was okay to set austerity aside in order to make a loan to Ireland because of the promise of repayment. He said that this loan “adds to our debt” but
“We’re getting back a very important asset which is a commitment from the Irish government to pay us back with interest.”
What puzzles me is which part of that definition of a sensible loan did not apply to Sheffield Forgemasters. [Hon. Members: “Oh.”] I am sorry that Government. Members groan about British manufacturing industry. My right hon. Friend the Member for Sheffield, Brightside and Hillsborough (Mr Blunkett) raised this issue during the Chancellor’s statement on 22 November. Why does the Chancellor agree a huge loan to Ireland on the basis he cited but reject a modest £80 million that would be paid back with interest and boost the opportunity of British manufacturers to have a substantial stake in the civil nuclear energy supply chain, which is currently dominated by overseas companies? At a time when we are looking for jobs and growth, the logic of that escapes me.
My third concern is the prospect of each eurozone country being bailed out as its economy falls into crisis without addressing the root causes of the continent’s problems.
Mr Cash
Is the shadow Chancellor aware that serious discussions are going on about increasing the €400 billion facility, and probably doubling it? In response to my hon. Friend the Member for Kettering (Mr Hollobone), is not the whole European Union, not to mention the world at large, confronting a very dangerous and difficult situation?
Alan Johnson
Yes, but that is a matter for the eurozone. If the Chancellor is right in his prediction that perhaps this can ensure that we come out of the €60 billion mechanism, the facility and the other moneys, then fine, but as we are making a big contribution—more than we would have done had we paid the amount that a eurozone country would have paid to rescue Ireland—we must be in a position to influence this debate.
Mr Andrew Tyrie (Chichester) (Con)
Until the shadow Chancellor’s last few words, I was looking forward to saying that I agree with just about everything that has been said from both Front Benches. None the less, there is a good deal of cross-party consensus about what is being discussed.
The Chancellor is faced with a difficult situation: a regional currency crisis that is largely not of his making, a close neighbour with strong historical ties in the eye of the storm and an inherited financial commitment to assistance at the European level.
The Treasury Committee took advantage of the Chancellor’s appearance before us last week to cross-examine him on these matters in some detail. That appearance, his speech today and particularly the terms sheet, which we have just received, have given us a good deal of information, and I am grateful to him. I am relieved, according to that information, that any increase in the loan, which is permitted by the legislation, will be debated on the Floor of the House.
We now know the price of the loan for the first time, broadly speaking. It looks sensible, although I notice that it can be varied under the enabling legislation. As my hon. Friend the Member for Rochester and Strood (Mark Reckless) has pointed out, we have discovered from the terms sheet that the loan is junior in the debt hierarchy to support through the EU mechanism. It would be useful if the Minister, in the winding-up speech, told us whether the Irish can repay the loan early without penalty. I do not think that that is what is stated in paragraph 5(c) of “Other Terms” in the loan agreement—I have obviously had very little time to read it—but there is also a reference to “exceptions” in the bracketed part of the sentence.
A number of hon. Members and I would like to know whether the Government have considered purchasing assets held by the National Asset Management Agency, as an alternative to part or all of the loan.
As far as I know, this bilateral loan has no direct precedent. The UK has gone further than was needed to fulfil its legal obligations. The Chancellor made a strong and persuasive case, which was supported by the Opposition. However, I think that that decision needs close scrutiny, as does the decision, which straddled the previous Government’s tenure, that left the UK with extra contingent liabilities as a result of the mechanism. We may have been put in the unsatisfactory position of making EU budget payments to bail out the eurozone, even though we are not a member of it.
It is important to bear in mind that demand for a bail-out originated not with a request from Ireland, but from the fear among eurozone members of contagion spreading from Ireland to Portugal and Spain. Most hon. Members agree that bailing out the eurozone is primarily its business and not ours. It is true that the collapse of the zone would generate shockwaves throughout the region, and possibly the world. However, the eurozone does have the capacity to bail out weaker members and, to the extent that the stability of the whole financial system is at stake, our contribution should usually be made via the International Monetary Fund. It is for those reasons that I was relieved when the Chancellor confirmed before the Select Committee that the legislation will be unique to Ireland and does not contain enabling powers for further bilateral eurozone bail-outs.
Mr Tyrie
I appreciate that. The Chancellor has referred to 2013 on a number of occasions, and my hon. Friend has referred to the possible unlawfulness of the mechanism on a number of occasions, including in private discussions.
This is a crisis of the eurozone, for which UK taxpayers are footing part of the bill. The UK will have to engage with members of the eurozone to limit the damage now and to construct something better for the future. I will touch on a few of those points in the moments that remain. I recognise that the problems to which I refer may be intractable. First, as the Chancellor has said, the senior creditors have been exempted from a haircut. The Chancellor told us that this was because of the risk of contagion. He is probably right, but the resulting moral hazard is large and will have to be addressed.
The second issue that I wish to raise, which naturally none of the authorities wants to talk about, is the fact that even the measures for Ireland and for Greece may not prevent default. The crisis may be one of solvency, not liquidity. That has a bearing on the lender of last resort provisions for the eurozone. It is possible that a sovereign default could trigger a banking crisis and even failure in parts of the eurozone, because banks hold a large amount of sovereign debt on their balance sheets. Such a bank failure could be highly toxic.
It is worth bearing in mind that the great depression of the 1930s was triggered as much by bank failures after 1931 as it was by the stock market collapse of 1929. I do not want to play the role of Cassandra, but I plead that contingency planning at European level be done now for the risk of such a bank failure. On the basis of the eurozone’s responses to the crisis so far, I am not optimistic that that planning is being done. The eurozone is fearful of leaks, and those doing the work would be terrified of that possibility. I have no doubt that that would inhibit their work. In addition, pessimism on such issues in European circles does not exactly make such work a career-enhancing prospect for the eurocrats who would have to do it. Let us just hope that they are doing that work.
The third problem that I wish to refer to—I shall leave it at that given the time available—is the long-term future of the eurozone itself in a world in which the bond markets have discovered that the no bail-out clause is toothless. I should say at this point that I have never opposed the eurozone on ideological grounds or on grounds of principle, but I have been wary on practical grounds, particularly the ground that the no bail-out clause may turn out to have no clothes. That is exactly what has happened.
Mr Darling
The circumstances in which Ireland finds itself are complex, but there is no doubt that one problem is that a common interest rate right across Europe is perhaps inappropriate for an economy that is rapidly investing in an asset bubble. However, I do not have the same phobia about the euro that many Conservative Members still have, 20 years on.
Mr Cash
I am extremely grateful. Did the right hon. Gentleman take legal advice on whether, as I said at the time, the use of the financial stability mechanism was an unlawful deal? Article 122 of the treaty on the functioning of the European Union deals with natural disasters, energy supplies and so on, and it has absolutely nothing to do with financial mistakes or misjudgments. Really, the whole thing should never have gone through, and he should have repudiated it on those grounds.
Mr Darling
Yes, but as I said earlier, because of QMV, the deal would have gone through anyway. I also do not agree with the hon. Gentleman’s analysis or that the legal position was that clear-cut.
Chris Leslie (Nottingham East) (Lab/Co-op)
Let me say on behalf of Her Majesty’s Opposition that we welcome the debate, in which plenty of views have been expressed from different parts of the Chamber on what is an incredibly important matter. Many Members in all parts of the House—including my right hon. Friend the Member for Edinburgh South West (Mr Darling), the former Chancellor of the Exchequer, and the hon. Member for Chichester (Mr Tyrie), the Chairman of the Treasury Committee—have voiced, perfectly reasonably, their anxieties about the loan to Ireland.
Clearly these are troubled times for the world economy and for the eurozone, and we must sincerely hope that we will not find ourselves here again. The Opposition recognise that there are interdependencies between Britain and the Irish nation in respect of economic trade, direct relationships between our banks and financial investments across Ireland. Moreover, it is our only land-bordered nation state. We therefore have a duty to support the principle and spirit of the legislation, because a failing Irish economy would create harm here in the United Kingdom.
Chris Leslie
I think we shall have to take the issues as they come before us. I understand the hon. Gentleman’s anxieties, but, on balance, given the choices that we face, we consider it incumbent on us, as a responsible Opposition, to support the Government on Second Reading.
Let me make a couple of points—briefly, because I am conscious of the time and the need for us to debate the amendments, not least those that I have tabled in respect of clause 2.
The events in Ireland remind us starkly of the principal facts that Ministers have, I am afraid, preferred to hide hitherto. First, the credit crunch was a worldwide, international crisis, not simply something in the United Kingdom. Secondly, the failures of banks that gambled excessively not just with our money but with the money of the Irish people and others are at the root of our present predicament.
The Chancellor of the Exchequer has done well in spinning the line that it was all the fault of my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown), the former Prime Minister—that he was somehow personally responsible for single-handedly causing the credit crunch in the UK before jetting off to Washington and starting the banking collapse there, then flying to Ireland via Spain, Portugal, Greece and the rest of the developed world, spreading banking catastrophe from continent to continent. However, the Bill—perhaps uncomfortably for the Chancellor—reminds us of the ridiculousness of the coalition’s revisionism, and reminds us that the rewriting of history can occur only if we believe in the gullibility of the public, as I suspect the Chancellor does. Although the Government think that may be able to fool all of the people all of the time, the truth is now overwhelmingly obvious, and proves beyond doubt that the greed of profiteering bankers has required the poor, beleaguered taxpayer, here as well as across Ireland and Europe, to bail them out of the mess that they created.
I am afraid that we heard no apology in the Chancellor’s hour-long, technical speech, and no expression of regret in respect of his free-market deregulatory exaltations of the “shining example” shown by the Irish economy. Perhaps that was an error, but sadly he did not acknowledge it. We are not convinced, either, that the Chancellor stands chastened or reflective in regard to his ill-judged comments about the Irish economic miracle”. Perhaps even we could have expected him to have some conception of the risks posed by the simple “austerity at all costs” principle underpinning his economic policies, but that was not there either.
Fundamentally, the problem is this: if the Chancellor of the Exchequer does not understand the causes of the deficit, he is certainly not the right person to fix it. My constituents, like those of the hon. Member for Wellingborough (Mr Bone), find it difficult to understand how, given that we were supposedly on the brink of bankruptcy, we can find £3.2 billion for the Irish loan, but nothing for Sheffield Forgemasters.
Sadly, however, we must recognise that the measures before us today are a result of the fragility of the worldwide economy. We hope that, eventually, the Chancellor and the Prime Minister will step up and show a little more leadership, especially in Europe, rather than using bail-outs and loans as sticking plaster. We hope that they will pay more attention to the root causes of what is happening to the economy, and will recognise that we cannot just cross our fingers and pretend that collective austerity will do the trick in all cases. My right hon. Friend the Member for Edinburgh South West is absolutely spot on when he talks about the inadequacy of that proposition. How will the European Union regain the market’s confidence in a longer-term trajectory back to stronger revenues and economies? Where are the growth strategies to build longer-term prosperity?
We have to accept, however, that the case for the loan to Ireland outweighs the case against it. There are risks that need dealing with, including the risk of contagion throughout the eurozone bond market. The ongoing crisis risks shrinking our export market potential in the long run, and as a consequence that risks creating losses for banks in the UK—banks of course that we own. So on balance and for those reasons, we do not oppose the Bill at this time, but in the time remaining we hope to scrutinise the detail in Committee.