William Cash
Main Page: William Cash (Conservative - Stone)Eurozone Financial Assistance
William Cash Excerpts
Mark Reckless
My hon. Friend is quite correct. There is talk of establishing a permanent bail-out arrangement, and we, the United Kingdom, have a veto over that. We should use that veto to relieve ourselves of all liability under a mechanism that should never have been agreed. That is what my motion proposes, and the amendment fails to do so.
When the European financial stability mechanism was set up, we were told that there would be €60 billion in it, whereas €440 billion would be paid by the eurozone members. Yet in the case of every bail-out we find that the mechanism is used to the same level as, or even more than, the eurozone facility. We in the House and this country are being forced to pay for the mistakes of others, and only this House has the power to stand up, vote and say no.
The whole mechanism is illegal. Let us remember Maastricht and the “no bail-out” clause that the Germans insisted on. What has happened to that? Let us remember article 122 of Lisbon, which states that the mechanism is for natural disasters or other exceptional circumstances beyond member states’ control. Did not Ireland, Portugal and Greece decide to sign up to the euro? Portugal has barely grown at all as a country since it joined the euro, and it has done next to nothing to control its spending. I am afraid there is nothing exceptional about that, and nothing beyond its control. It is just using the mechanism, to which we should have said no, to make our constituents pay for its own mistakes.
Mr William Cash (Stone) (Con)
Does my hon. Friend recall that Madame Lagarde herself, the prospective head of the International Monetary Fund, said on 17 December last year on that very point:
“We violated all the rules because we wanted to close ranks and really rescue the eurozone”?
She was being very clear and telling the truth.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Before the hon. Member for Rochester and Strood (Mark Reckless) responds, may I warn him that he only has three minutes to go?
Joseph Johnson (Orpington) (Con)
It is critical that we put into perspective UK taxpayers’ exposure to the bail-out mechanism. No Government Member relishes having to put the faith or the credit of Her Majesty’s Treasury behind the bail-outs of profligate peripheral eurozone countries, especially at a time of austerity at home, but the coalition Government inherited this situation. The temporary bail-out mechanism, which runs until 2013, was agreed on 10 May 2010 by European Finance Ministers at ECOFIN—after the general election, but before the coalition Government were formed. As the right hon. Member for Edinburgh South West (Mr Darling) admitted in Parliament, the Chancellor opposed the mechanism at the time, as was clearly recorded in Hansard on 15 December 2010. [Interruption.] Any Labour Members in doubt about that can verify it for themselves.
Joseph Johnson
I thank my hon. Friend for that intervention. I have been led to understand that the Government took the position that there was no strong legal case to support any such challenge.
None the less, it sticks in the craw of many Government Members to be in this position and, like them, I have my doubts about whether the mechanism is being applied in exceptional circumstances beyond member states’ control, which is the test for triggering the deployment of financial assistance powers under article 122(2) of the treaty on the functioning of the European Union. Government bond yields in the eurozone periphery are trading at the level they are in some countries because of the reckless management of public finances and the political gridlock in those countries, and because of backsliding on long overdue structural reform. In Greece’s case, Government bond yields are trading at about 20% because of Athens’s lack of progress towards meeting the pledges it made last year as part of the EU-International Monetary Fund bail-out. That is a case in point.
Painful though it was for the Government to be saddled by the outgoing Labour Administration with an indirect contingent liability through their involuntary participation in the mechanism, the truth is that our overall exposure is a rounding error when compared with that facing Germany and other northern European countries in the core euro area. The debts of the eurozone periphery are being progressively socialised by European Central Bank financing operations that could, in time, be seen as the forerunner of an effective eurozone bond. In the meantime, the €60 billion mechanism is just part of a far larger package of measures to preserve financial stability in the EU to which we have no exposure, except indirectly through our share in the IMF. We are on the hook for a share of €60 billion out of an overall package of €750 billion. Our share, which is about 12.5% of that €60 billion, is just €7.5 billion, or 1% of the €750 billion package.
We do not wish to throw away that 1% lightly, of course, but happily, for that exposure to crystallise, all the countries that have thus far subscribed to the mechanism would have to default in totality. IMF data on the history of sovereign defaults around the world suggest that that is highly unlikely. Even in the unlikely event of a domino series of defaults across the countries that have subscribed to the mechanism, it would be extraordinary for there to be a 100% default rate. The pattern of defaults around the world suggests that losses from default are normally between 25% and 35% of the total losses to which countries or investors have exposure.