I am grateful for this opportunity to make a statement to the House about Ireland.
The House will understand that the Chancellor is currently in Brussels at the meeting of the Council of EU Finance Ministers. I understand that hon. Members are concerned about the events that have unfolded.
Ireland has been facing difficult economic and banking challenges for some time, and as a member of the euro area its ability to use policy to respond to economic shocks is less flexible than our own. As a result, there are ongoing market concerns about Ireland’s economic and financial resilience.
Let us be clear: there has been no formal request for assistance from Ireland, or for that matter from any other member state. I hope the House will understand that it would be inappropriate for me to engage in any speculation on what might happen in Ireland, given that it has made no request for assistance. It is not for me to say whether Ireland should request assistance, just as I would not tell it how to run any part of its economy. Its large financial institutions have obviously got themselves into difficultly, and we very much hope it will be able to resolve those pressures.
Ireland is one of our biggest export markets. We have very close economic ties with it and, as the Chancellor said this morning, it is in Britain’s national interest that the Irish economy is successful, so we stand ready to support Ireland in the steps that it needs to take to bring about stability. I am sure that our fellow EU member states will share that sentiment, and I assure the House that we will keep it informed of developments.
I thank the Minister for his response. At a time when the United Kingdom is already contributing extra funds to the European Union—over the next five years our net contribution will be £41 billion, an increase of more than £21 billion compared with the past five years—and when we are making drastic cuts in the UK’s economy, does he think it is acceptable that any further funds should be committed to the EU?
The coalition Government have made it clear that we will not join the euro during this Parliament, arguing that the euro, with its single interest rate but diverse economies, cannot work. Will the Minister confirm that we will not be joining the euro?
The Government have also made it clear that the UK will not support the euro. Will the Minister therefore rule out the UK participating in any bail-out of the Irish economy? Will he also confirm that the €440 billion special-purpose vehicle facility—a voluntary intergovernmental agreement between eurozone countries —should be used for any such bail-out?
Does the Minister further agree that the use of the stabilisation mechanism, which the United Kingdom guarantees up to £8 billion, was not intended to be used to bail out eurozone countries facing financial pressure? Finally, does he agree that what is required from the EU is support for member states’ policies when, like Ireland, they are trying to do the right thing? Instead, the EU has undermined Ireland and created a crisis.
May I first reassure my hon. Friend that it is not the Government’s intention to join the euro during this Parliament? I am not entirely sure what the Opposition’s view is, but we have ruled that out.
My hon. Friend mentions the two mechanisms that are available for stabilisation. The stabilisation facility is purely for eurozone member states, outside the auspices of the current treaties and a bilateral, Government-to-Government arrangement. The mechanism that he refers to is available to all members of the European Union. The previous Government and the previous Chancellor decided to join it in the days prior to the formation of the current Government, and I believe that they need to be held to account for that decision.
Clearly, these are difficult times for the world economy, and Ireland is the current focal point of market concerns. Although the Minister offered little in the way of detail today, is it not clear that, stepping back, the overall long-term lesson to learn from these developments is that economic growth matters?
Ireland is a vital trading partner, to which 7% of our exports are sold, and the current situation matters because its economic strength has a significant effect on our own growth prospects. Will the Minister accept that the emerging global recovery is fragile, and that to rely as heavily as the Government do on export-led growth in the years ahead is a risky gamble?
Will the Minister confirm that this issue extends beyond trade, and that UK banks have lent about £83 billion directly to Irish households and companies? We saw at the G20 last week that the Government need to show stronger leadership on economic growth here and abroad, so can he reassure the House that any forthcoming package from the EU will address fundamental and underlying economic issues rather than act as a sticking plaster, merely tackling symptoms that may recur again and again in future?
The previous Government were clear that the problems facing countries adopting the euro would need to be solved first and foremost by member states within the euro area. Will the Minister confirm that the principal fund designed for any loan to support the Irish or other eurozone countries would be the European financial stability facility, which is envisaged at about €750 billion? Are reports in today’s Financial Times correct that the UK is spending time and effort spinning any future action as “bilateral support” rather than co-ordinating with the EU? Would it not be better if the Government were straight with the public about what they plan?
Does the Minister accept that, although we were right to stay out of the euro, it is essential that the euro is stable and successful for the long term? Will the Minister say categorically that the Treasury’s position will be driven by the best interests of British growth and jobs and not designed to pander to the Eurosceptic political instincts of those in his party who might circle the eurozone in its time of difficulty?
In 2006, the Chancellor wrote in The Times that Ireland’s economy provided a “shining example” to us all. Is it not clear now that, rather than being an example, it provides a warning of the dangers of a one-track economic strategy, built around austerity alone, that endangers growth and puts jobs at risk? Both abroad and at home, what matters is a strong strategy to rebuild jobs and growth.
The Chancellor made it clear this morning that we will do what we need to do in accordance with Britain’s national interest. Ireland is our closest neighbour, and it is in our interests to ensure that the Irish economy is successful and that it has a stable banking system. He said that we stand ready
“to support Ireland in the steps it needs to take”
to bring about that stability. The reality is that Ireland has got some things right. It has a flexible labour market and low taxes. None the less, it made the same mistake as the previous Government—it failed to regulate its banks properly. The problem in Ireland is driven not by high public spending but by a banking crisis. If we listened to the Opposition, the UK would be the only country that was weakening rather than strengthening its fiscal position.
It is clear that the actions we have taken have been welcomed by a range of bodies at home and abroad. What is happening at the moment demonstrates that concerns about sovereign debt issues have not disappeared. We should be grateful that, thanks to the actions of this Government, Britain has moved out of the fiscal danger zone.
The €440 billion eurozone facility can be used without infringing either UK liability or sovereignty. The Darling guarantee mechanism with qualified majority voting involves, unnecessarily, both UK liability and sovereignty. Where it is in our national interest and we can afford it, why not provide a UK-Irish but non-EU loan?
I have a large number of Irish constituents, and I am naturally concerned about their families and livelihoods back in Ireland. The fact is that the Irish crisis is part of a wider crisis in the eurozone, affecting a number of countries that will be unable to sustain long-term membership of the euro. Is it not time to have discussions—privately, perhaps—about the possibility of reconstructing national currencies, particularly the punt, so that the Irish can join the sterling zone, where they belong, and not the eurozone?
As the Irish Government need a workout and not a bail-out to deal with their risks and credit problems, should not the British Government support them and resist the foolish intervention by Germany, which is trying to use this as part of a power grab for the EU?
Given that Chancellor Merkel’s comments have caused such turbulence in the bond market in the past week, I welcome the measured and respectful terms in which the Financial Secretary and the Government have addressed the crisis in Ireland. Does the Financial Secretary accept the judgment of EU Commissioner Olli Rehn? He said:
“In the case of Ireland in particular, we need to recall that sovereign debt has not been at the origin of the crisis. Rather, private debt has become public debt. The financial sector has misallocated resources in the economy and then stopped working. It needs reform.”
The problem does not apply only in Ireland. I remind the Financial Secretary that, if the national pension reserve fund is counted, Ireland’s debt to GDP ratio is not that far wide of the UK’s currently.
The hon. Gentleman makes an important point. The crisis is around the banking system in Ireland—it is not a fiscal crisis. Of course, we almost had to learn the lessons of failure to regulate the banking system. The Government therefore introduced radical reforms to strengthen the stability of the banking sector in the UK.
May I welcome the statement of the Financial Secretary and the Chancellor, and their offer of £6 billion of UK taxpayers’ money to help stabilise the eurozone? We must all welcome the contribution to consolidating the eurozone as a sound economic area. However, what has happened to moral hazard? Most of the money will go to the banks. When will they pay anything—any price—for the crisis they caused?
Irrespective of our obligations under the new European mechanism, which the Labour Chancellor agreed, will my hon. Friend confirm that there is a strong British national interest in securing a stable banking system on both sides of the Irish sea?
My hon. Friend is absolutely right. We have strong economic ties with Ireland, which is one of our biggest trading partners. Our economies are closely interlinked, and it is therefore in our national interest to ensure that the Irish economy and banking system are stable.
Does not the Financial Secretary think it worrying that, when the Irish Government consistently say that they do not require a bail-out, the speculators in the bond market—the hyenas who used to attack our currency—try to bring down the Irish Government’s financial position? Is not it right to support Ireland and the euro, of which it is part?
Will the Financial Secretary tell the House about the strong interest being shown across the world in the Government’s positive approach to tackling fiscal consolidation? Does not that further confirm that this country is now on the right path to tackling the economic crisis?
My hon. Friend is absolutely right. The crisis reminds us of the continuing focus on sovereign debt. The Government have taken clear measures to tackle our fiscal problems, and international bodies have recognised that. It is one of the reasons for Standard & Poor’s reporting our credit rating as stable compared with its negative outlook under the previous Government. We are taking the right steps to secure our fiscal position, bearing in mind that the crisis in Ireland is around banking, not the fiscal position.
It is in no one’s interests for the Irish Republic’s economy to go down even further, but taxpayers in the United Kingdom are worried that the Irish Republic could be next, followed by Portugal, Spain and Italy, and that the full and true extent of what we might have to pay is not known.
I do not want to engage in speculation about the eurozone; I do not think that that is very helpful. The hon. Gentleman, like the hon. Member for Foyle (Mark Durkan) and their colleagues, will know from experience in Northern Ireland that we have very strong interests in the stability of the Irish economy, and it is important that we stand ready to help the Irish Government in stabilising it.
Does the Minister agree that the problem in Ireland is not so much the fiscal measures that it is taking, or global growth, but the fact that it is in the euro, and that as long as Ireland is in the euro it is hard to see how it can work its way through these problems? Would the Minister like to pay tribute to all those on this side of the House who fought to keep this country out of the euro?
Indeed, and my hon. Friend makes an important point. We have access to a wider range of economic tools to resolve our problems as a consequence of our being outside the euro. It is also worth bearing it in mind that this crisis flows from the banking sector, not from public spending in Ireland.
It is right to support our near neighbours in Ireland and their economy. The problem over the past 18 months has been twofold: severe austerity measures and the collapse of the construction industry. Will the Government ensure that we do not follow that path? Will the Minister use the flexibility the Government have outside the euro to ensure that we slow the cuts and do not have the mass unemployment and depopulation that we have seen in Ireland?
I thought that the hon. Gentleman almost had it. The crisis in Ireland is around the banking sector, not the fiscal position. I believe that we are taking the right measures to stabilise the UK economy—the cuts we are making in public spending—to get our deficit under control and to keep interest rates as low as possible for as long as possible. Labour Members are the only ones calling for a weaker fiscal position when the world is moving to stronger fiscal stances.
If we are to spend taxpayer money dealing with this crisis, rather than bailing out the euro should we not be helping Ireland to bale out of the euro or, at the very least, to retain her economic independence against the Van Rompuy system of pan-European economic governance?
I thank the Minister for the reassurance he has already provided in not ruling out intervention or assistance should it be required. Will he provide further reassurance that he will give special consideration to the situation in Northern Ireland, where many of the Irish banks to which he refers are operational and indeed on which many of our businesses rely?
The Government spent six months telling us that Britain was very much like Ireland and had a similar sovereign debt crisis. Now we hear that we are in a very different position because we are not in the euro and we have other economic tools. Which is right?
We have taken action in the UK to tackle our fiscal position to avoid a sovereign debt crisis. [Interruption.] Opposition Members need to recognise that the problems facing Ireland stem from a banking crisis—the banking sector was poorly regulated. We are learning lessons from that in the UK, but it is very clear that because we are outside the euro we have the flexibility to engage in economic policy by setting interest rates that meet our economic needs, and we have the flexibility that our exchange rate brings in stimulating exports. We are in a much better position as a consequence of being outside the euro.
My hon. Friend is absolutely right. It is noteworthy that Opposition Members have made yet another call for us to put off making difficult decisions. We see in Ireland what will happen if we do not make difficult decisions now and sovereign debt ratings come under pressure.
Does the Minister agree that we should thank goodness that Scotland is part of the United Kingdom? Scottish banks were bailed out by the UK as a whole rather than being left to float loose as those in Ireland have been? Does he agree that if, when they are making cuts, the Government can find billions of pounds to bail out Ireland, they could better use that money to ameliorate the effect of the cuts in the UK?
Does not the crisis in Ireland and across Europe underline how right the Government have been to take the tough but necessary action to save us from bankruptcy? Will the Minister condemn the siren voices in Europe that are talking down Ireland, and will he be a friend in need, as we, as a country, should be?
My hon. Friend makes a number of very valuable points. If we had not taken tough action when we came into government, when rating agencies had our credit rating as negative, we would not have managed to narrow the spreads on UK debt compared with German bunds and reduce the yields on British debt. All that is testament to the strength of the action we have taken to tackle Britain’s fiscal problems and the legacy we inherited from the Labour party.
As I said earlier, a number of aspects of Irish economic policy created growth, but I remind my hon. Friend, and Opposition Members, that the problems facing Ireland stem from a banking system that was not well regulated, which led to an asset price bubble. We have taken the right action in this country to tackle our deficit and to avoid having our credit rating put at risk.
The mechanism established to address bad banking debt in the Republic of Ireland, the National Asset Management Agency, known as NAMA, holds several billion pounds of properties in Northern Ireland and across the rest of the United Kingdom, particularly here in London. What representations are the Government making to protect our economy from NAMA deciding to float that property at the cheapest possible price to meet the needs of the banking sector in the Republic of Ireland, thereby damaging our economy?
Does my hon. Friend agree that the banking crisis was caused, in large part, by poor regulation? Will he take into account comments made by the City of London corporation to the Treasury Committee yesterday that UK banks believe that the regulatory regime we are putting in place in the UK has elements that are not compatible with the European regulatory regime? Will he take those comments very seriously and try to make sure that Britain’s banking sector is properly regulated and not incompatible with the European regime?
I have not seen in detail the comments made by the City of London corporation yesterday in evidence to the Treasury Committee, but I am determined that the regulatory reforms that we introduce will lead to a more stable and sustainable financial services sector—and a more stable and sustainable economy.
Does the Minister agree that the test of any currency is in the tough times, not just the good ones? That was explained to all the countries that joined the euro, many of which, in my view, did so with their eyes wide shut. Is it not abhorrent that this liability, and the failure of the euro, should become a liability to the UK taxpayer at this time?
I do think that we have an interest in having a strong, stable eurozone and eurozone economy. Member states will reflect on the measures that need to be taken to strengthen the eurozone; that is part of the thinking behind some of the measures in the economic governance paper proposed by Herman Von Rompuy just a few months ago.