Eurozone Crisis

My Lords, I am grateful to the noble Lord, Lord Lamont, for initiating this timely and important debate. Its title is rather wide; as has been said, it is about the UK and the euro, and my angle is going to be a little bit different from the one that the noble Lord opened the debate with. In the week of the Chancellor’s Autumn Statement, there have been yet more make-or-break meetings in Brussels. Yesterday there was a substantial public sector strike, just to underline the timeliness of what we are going to debate today. No one should doubt that in the present economic crisis there are also the seeds of a considerable political one. The way that the international markets set strict rules for countries makes it fairly clear that many democracies are struggling to live within those rules, and to some extent that includes us. When the banks were in trouble, everyone agreed that that moral hazard did not apply. Governments sprang to their defence and transferred the banks’ huge debts on to their nations’ balance sheets, splashing copious amounts of red ink over the national accounts. Yet when the individual countries were subsequently hit, moral hazard came in with the vengeance. The terms of the so-called rescue packages are very harsh—less Marshall Plan, more reparations. It should now be clear, and I hope that it is clear in Brussels and in the IMF, that this is a road to depression and political crisis in the countries worst affected, not a road to recovery. The single way to cut deficits is to get people back to work. Then there are more tax revenues to be collected and more disposable income to spend. Looking after the deficit while hoping that unemployment looks after itself is self-flagellation or, worse, economic suicide, as Joseph Stiglitz has regularly termed it. How did we get into this mess? There are many reasons for that, but one is that the world economy has changed fundamentally since the financial deregulation of the 1980s. This was carried through in the UK largely on the watch of the Treasury of the noble Lord, Lord Lawson, who inadvertently is leaving at the very moment that I have referred to him.