Eurozone Crisis

This is very intimidating company with so many speeches from people with experience, knowledge and wisdom on this issue. While I fully recognise the seriousness of the problems that the eurozone faces and those that it poses for an already difficult economic situation globally—I may say a few more words about that in a minute—we are at risk of slipping into some extraordinary melodrama in the way in which have discussed this issue. Today may have been an illustration of that. I just thought, as others will have, how this debate would sound if it was taking place in Berlin, Paris, Madrid, Rome or even in Athens. Would we be hearing parliamentarians calling for exit from the euro and the dissolution and break-up of the eurozone? The noble Lord, Lord Lawson, mentioned democracy; what would we hear people calling for if we were out on the street in those capitals? We are all very conscious that that is not the theme that we would be hearing. I do not think that anyone doubts that there has to be a resolution to this crisis. There has to be a process of change and a rebalancing, and part of the problem is obviously political. But I very much doubt that we are looking at a major collapse of the euro. Perhaps Greece might have to leave, but even that is in question, and I think that there will be a notion of hard currency and soft currency. Having all those variabilities is probably a very British viewpoint of a circumstance where we are outsiders and not in very good communication with the countries most engaged. I accept—and the noble Lord, Lord Liddle, had it right—that Germany is playing a rather difficult game, encouraging and enforcing new levels of fiscal discipline in countries such as Italy, Spain and Greece, which have played the game badly and taken advantage of the past years of plenty in order to ignore the need to restructure and reform their economies. That I fully accept. I think that Merkel is playing a game of chicken, and it is a relatively dangerous one, as chicken always is. However, I think that we will eventually see the Germans, one way or another, allowing the ECB to play its role as lender of last resort. That will be a change—relationships will have changed within the EU—but it will be very different from a break-up. Looking back on this period in 10 years’ time, I think we will see this as a period of reform within the euro and the eurozone but not as the collapse and final end of the eurozone, and we have to be conscious of that. Two things have become incredibly apparent during these past weeks. The first is that we are dangerously distant from the conversations with our European partners. I am not referring simply to some of the snubs to David Cameron, which I think have been unfair, because advice has been offered in good spirit and in genuine concern. However, looking at how other countries work with each other—for example, the relationship between France and Germany—surely we need to start building something like that ourselves. We should do so not in order to become more part of the eurozone but to be in proper conversation with it, whether through joint Cabinet meetings or much more extensive engagement between Ministers. I am talking about the building of trust. This even relates to the Civil Service. It is often considered a career dead-end in Britain if you are a civil servant who spends time in Brussels or engages with other European countries. Surely we have to overcome that so that we have a proper communication flow, real conversation and real influence. The noble Baroness, Lady Valentine, raised a series of issues. It seems to me that if we want protection for the British interest, we surely have to build on those things too. The other thing that has become apparent is how fully engaged our economy is within Europe and with the eurozone. Sometimes people say that we have a problem in that 40 per cent of our exports go to Europe, but the engagement goes much deeper than that. You will be hard-pressed to find a major British company that is not in some way deeply embedded within Europe and the eurozone. That may be because investment comes from Europe to a British company. Many companies that we think of as British are European-owned, or they are British companies with major European subsidiaries, or they are British subsidiaries of US or Japanese companies but we are part of their European portfolio. The consequences for us of what happens in the eurozone are far more substantial than we would think from most of the superficial conversation that takes place. We need to look at the various charts and statistics published by the Office for Budget Responsibility this week to see the exposure of various banks within Europe to various European Governments. It is absolutely clear that British banks are heavily engaged not just at the superficial level that the chart shows but in layer upon layer: the exposure that we have to French or German banks is as a consequence of second-hand engagement just as much with Italian, Spanish—in fact, we are deeply in with the Spanish—and Greek banks as with others. Even the statistics here do not mention things such as credit default swaps and other mechanisms and derivative mechanisms that have led to incredibly deep engagement in Europe by our financial institutions. We have to resolve that. For me, probably the most alarming statement when the OBR report talked about the viability of its forecast was that the impact of the collapse of the eurozone would be impossible to quantify. That kind of uncertainty gives us a sense that we are dealing with circumstances that have a very big impact on us. What can we do? I believe that restoring and building communication, trust and understanding is going to be absolutely crucial as we move forward. Secondly, as others have said, we have to look to our own economy. Again, others have talked of the importance of the new commitment to growth, infrastructure and to taking care of our own house, as it were, and making sure that we are underpinning our own future. This is not a debate about the autumn Statement but there are important things to be said in that a good part of our protection going forward is the kind of commitments we have seen for infrastructure and releasing the cash from our pension funds and major businesses to support our economic future. There has been support for the green investment bank. We had talk of a broader investment bank but the green investment bank is crucial because that kind of support can take us through the sort of innovative technologies that will be necessary if we are to be involved in a major economy. The new mechanism is there for supporting small and micro businesses. Many of them are measures that are neither political nor contentious, but they should have been introduced years ago to ensure that there was a breath of life in the British economy. I end by saying that we are at great risk of a self-fulfilling prophecy. I remember seeing a play at the National Theatre of ““Oedipus Rex”” that was so desperately depressing that at the end all the actors came on stage covered in bells to jingle and sort of relieve the sense of depression. We have to start looking at the positives in our own and in the global economy before we manage to drive ourselves down into the depths. We have areas of manufacturing that are thriving. The German economy, believe it or not, is showing new confidence with strong manufacturing prospects. There are signs now, finally, of recovery in the US economy, despite the fact that there is political crisis there. Let us not always be about doom and gloom. Let us not always be about melodrama.