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Eurozone Crisis

Volume 534: debated on Thursday 3 November 2011

(Urgent Question): To ask the Chancellor of the Exchequer to make a statement on the euro crisis and its implication for the United Kingdom.

Hon. Members will be aware of recent developments in the eurozone. My right hon. Friends the Prime Minister and the Chancellor of the Exchequer are at the G20 meeting in Cannes as we speak, and we understand that the Greek Cabinet is due to meet imminently as well. We will not be providing a running commentary on the market and media speculation of those events, but I can reassure the House that the Prime Minister will be making a statement to the House on Monday.

What is clear, however, is that the instability in the eurozone continues to have a chilling effect on the rest of the European, the UK and the entire global economy. As the Chancellor has said, a resolution to that crisis is in our vital national interest. It is vital that the eurozone members reach a solution that is coherent, comprehensive and lasting. Last week, European Heads of State reached an outline agreement that laid out a blueprint to resolve the crisis. It was a three-pronged strategy. First, weak European banks should be recapitalised. Importantly, in the assessment of the European Banking Authority and our own regulatory authorities, no British banks require additional capital, which is an important expression of confidence in the country’s banking system.

Secondly, the unsustainable position of Greece’s debts should be resolved. In particular, a headline agreement was reached to reduce the Greek debt to gross domestic product ratio to 120% by 2020, through an additional €30 billion of euro area money and private holders of Greek sovereign debt being asked to accept a nominal write-down of 50%. Thirdly, eurozone member states should reinforce the bail-out fund to create a firewall, either by using the fund to insure new debt or by attracting public and private investors through a special purpose vehicle. Both mechanisms are designed to have the capacity to leverage around €1 trillion. This package demonstrated the commitment of the euro area member states to stand behind the single currency. It was progress, but more details are needed on how it will work.

Right hon. and hon. Members will be aware, however, of developments in Greece since that agreement was reached last week. There is no doubt that the decision by the Greek Prime Minister has added to the instability and uncertainty in the eurozone. Ultimately, it is up to Greece to make its own decisions, but it is critical that all parties stick to the deal that was agreed last week. That agreement is an important part of the economic recovery here in the UK, across Europe and across the global system. If the euro area collectively does not decisively sort out its ongoing problems, the uncertainty that that creates and its impact on global confidence will continue to undermine economic recovery across the world.

This is uncertainty that the global economy can ill afford, and uncertainty that has been a drag on all our economies for months. We will continue to urge our euro area counterparts to press for a decisive resolution of the crisis at the G20 at Cannes over the coming days, but at no point have we committed any British taxpayer money—not to Greece, not to the bail-out fund.

I want to address directly the question of UK commitments through the International Monetary Fund. Britain has always been one of the largest shareholders in the IMF, and there may well be a case for further increasing the resources of the IMF to keep pace with the size of the global economy. We stand ready to consider the case for further resources if necessary, but let me be clear: we are only prepared to see an increase in the resources that the IMF makes available to all its members. We would not be prepared to see IMF resources reserved only for use by the eurozone. The IMF can use its expertise to help administer its fund, but it can only lend to countries with a programme for adjustment. A potential special purpose vehicle for the euro area bail-out fund does not fit that bill.

Last week’s announcement, however, was only the first step to resolving the immediate crisis. In the long term, it is vital that the euro area members follow the remorseless logic to closer fiscal union. It is equally vital that we work together to improve competitiveness in the peripheral countries of the eurozone, as well as the overall competitiveness of the European bloc in the world economy.

The ongoing instability in the euro area is a vindication of the Government’s decision to get ahead of the curve, cut our own deficit and improve our economic competitiveness. Our decisive action to cut the deficit means that the UK has stayed out of the storm, and is the reason we have gilt yields close to the likes of Germany, rather than similar to those of Greece, Italy or Spain. We will encourage our euro area counterparts to do the same over the coming weeks. As I said, the Chancellor and Prime Minister are in Cannes. It is vital that leaders commit in Cannes to increase confidence in the global economy, agreeing the detail of the euro area rescue. The Prime Minister will update the House on Monday.

I thank you for granting this urgent question, Mr Speaker, and the Minister for his full response.

It has long been argued by Conservative Ministers that retaining the pound and allowing it to float in line with market conditions has enormous benefits for the British economy. If the British economy is having a difficult time, the value of the pound will fall, which makes exports cheaper and foreign companies’ imports more expensive, thereby increasing growth, jobs and prosperity in the United Kingdom. Equally, Conservative Ministers have always argued that the Bank of England’s ability to set UK interest rates allows the country to encourage growth in a recession and control expansion in a boom.

Both those powerful economic weapons are being denied to Greece, as it is in the euro straitjacket. Will the Minister explain why it is the Government’s policy to deny Greece a way out of its economic crisis by allowing it to withdraw from the euro and re-establish the drachma? Does he think it was a mistake for the German Chancellor and the French President to increase the crisis by making the Greek referendum on the bail-out a referendum on whether Greece remains in the euro? Does the Minister agree that the Greek Government were right to consult their people on the proposed austerity measures, so that if the country votes yes, they will have a mandate to drive through the reforms? What other countries does he think would come under market pressure because of the instability of the euro? Were the President of France and the Chancellor of Germany right to say that they wanted to save the euro at any cost, rather than putting the interests of Europe first? Finally, do the Government have a comprehensive contingency plan for when the euro collapses?

I am grateful to my hon. Friend for his question and his response to my statement. He is absolutely right: it was right for this country to stay out of the euro. That is the settled position of the coalition Government, and it is the right position to adopt. However, that was a decision that the people of this country made. It was not made under duress from other countries; it was a free choice that we made. On that basis, it is better for the Greeks to make their own decisions than for us to offer them advice.

My hon. Friend asked about contingency planning. He would expect every good Government to have plans in place to cover a range of eventualities, and this Government are well prepared for any eventuality.

The Minister should at least have the grace to admit that the reason we are not in the euro is because of decisions by the Labour Government.

Clearly there are major ramifications from the uncertainty in Greece. With the Greek Treasury due to refinance €8 billion on 19 December, time is of the essence. The Minister has told the House that UK banks have more than £2 billion of direct exposure to Greek sovereign debt, so what assurances did the Prime Minister seek from his Greek counterpart at last week’s summit about the implementation of that deal?

The market pressures on the Italian Government are now considerable. Can the Minister reassure the House that the Treasury is preparing for all eventualities? Will he confirm that UK banks have an estimated €10 billion of exposure to Italian sovereign debt? The Italian Government have been unable to agree a deal on structural reforms ahead of this week’s G20 meeting. While the UK has in the past offered bilateral loan aid to Ireland, clearly we would want to avoid being drawn into more significant loans to larger countries. Will the Minister therefore explain whether, in general, the Treasury will entertain support only via the IMF, or could bilateral loans be on the agenda on a case-by-case basis?

Does the Minister believe that the €1 trillion bail-out fund will be sufficient if other eurozone countries are drawn into the danger zone? Will the Greek referendum delay the establishment of the fund?

On the IMF, the Minister knows that many people are anxious to safeguard the interests of British taxpayers, and it would be wrong for the British people to pay twice over—through temporary, ongoing EU funds and the IMF. Does he therefore agree that the eurozone should not rely principally on IMF money for the bail-out and that there can be no excuses for eurozone countries not putting up their own resources? If we are to see a full and permanent euro bail-out fund, we agree that our role should be through the IMF, but what does the Treasury expect will be the scale and timing of any further increases in IMF funds for the eurozone, however they are described?

Finally, with our own growth so weak and with unemployment rising, the Chancellor must surely be regretting his claim that the UK is a “safe haven”. When will the Government take urgent steps to bolster the strength of our own economy to insulate us properly from this international turbulence? Is it not now abundantly obvious we need an immediate plan to boost jobs and growth here in the UK and across Europe? What will the Prime Minister be proposing to boost growth when he meets his G20 colleagues? The Government continue to play a dangerous ideological game, but it is time that they stepped up to the mark and opted instead for a proper strategy for jobs and growth.

Let me first tackle this issue of who kept us out of the euro. The fact that a previous Conservative Government secured an opt-out from the Maastricht treaty meant that we were not going to join the euro. Also, one of the things that we did when we came into office last May was to close down the euro preparations unit in the Treasury. We are taking action on contingency planning for a whole range of outcomes, and that work is under way in the Treasury.

The hon. Gentleman asked whether work would be put on hold on the three legs of the deal that was agreed last week. It is important that the euro area continues to work on those three legs, particularly on the ring fence and on the recapitalisation of the banks. They are important parts of the package, and they are needed to ensure that the eurozone is stabilised. He talked about the various European mechanisms that are in place to support finance. He will remember that the Greek bail-out was originally paid for purely by the eurozone; the UK did not contribute to it and has not contributed to subsequent parts of the bail-out package for Greece. We have negotiated that when a permanent mechanism is put in place to replace the one that the previous Government signed us up to, which we do have to contribute to, that permanent mechanism will not require UK participation. That is an achievement of this Government, getting us out of the mess that the Labour Government put us into in May last year.

The hon. Gentleman referred to the IMF. He will have to remember that it was he who led opposition to increasing our subscription to the IMF—[Interruption.] He says that that was to safeguard Britain’s subscription to the IMF, but it would in fact have marginalised the UK in international debates on tackling the global economic problems that we face today. Labour should think very carefully about its repudiation of the legacy left to it by the previous Prime Minister, who agreed to a trebling of resources for the IMF. We need to take action to stabilise the situation in the eurozone. The uncertainty is casting a chilling effect on the UK economy, and it is important that those issues are tackled as soon as possible.

I wonder how much we can reasonably learn from the Minister, given that the negotiations are taking place in Cannes and that he is here with us today. Anyway, there are one or two questions that we might ask. What assurance can he give us about the UK banks’ exposure not only to Greece but to other eurozone countries at risk? What confidence does he have that the eurozone banks have the capital strength required to withstand a eurozone default?

My hon. Friend asks some interesting questions. I think that I would rather be here in the House than in Cannes at the moment—[Interruption.] It is important that Parliament should hold Ministers to account on these matters, and I am here to answer its questions. On my hon. Friend’s first question about the strength of the UK banks, there has been a process with the leadership, through the European Banking Authority, which is based here in London, and it concluded that the UK banks did not need to be recapitalised. That is partly a consequence of the measures taken over the past two or three years to increase banks’ holdings of capital and highly liquid assets, which have helped to ensure that they are to an extent insulated from the problems in the euro area.

On my hon. Friend’s wider question about the strength of the European banks, I can tell him that, in calculating the amount of additional capital that banks should hold, the EBA determined that they should hold 9% core tier 1, and that, crucially, their holdings of sovereign debt should be marked to market rather than held at face value. That led to the calculation that banks across Europe need to hold an additional €100 billion of capital.

May I urge the Minister not to join others who are criticising Greece for its decision to hold a referendum? George Papandreou is a decent and honourable man, and at the end of the day, if he wishes to put this to the Greek people, it is a matter for them. Whatever their decision—I hope that they will vote to accept the bail-out—we should accept it. This is a country that has voted with us on the European Council on many occasions over the last 20 years.

The right hon. Gentleman makes an important point. This is a matter for the Greek people and the Greek Government to decide. That is a principle to which I am sure everyone in the House would wish to adhere.

The Minister will know that the presidency conclusions last week set out 10 new areas of European economic governance. What is the legal basis in the existing treaties for the creation of these new areas of governance and for the creation of a euro summit? Was the Prime Minister asked to give UK consent? Did he give his consent or were the Government bypassed? As Chairman of the European Scrutiny Committee, I would be grateful for specific answers to those questions.

My hon. Friend will be aware that a number of actions have been taken throughout this crisis intergovernmentally rather than through the institutions of the European Union. That applied to the creation, for example, of the European financial stability facility. There are ways in which actions can be taken that do not depend on the treaty because they are done between Governments rather than between Governments and the European Commission.

The Minister said something very interesting earlier. He used a phrase that I do not think I have heard a Minister of either side ever use before, which was the remorseless drive towards fiscal union—and, as I understood it, in an approving sense. The danger of that, of course, is that we will end up supporting for the first time a two-speed—a two-tier—Europe, with us very definitely at the second speed and in the second tier. Is that really what he wants?

We have always accepted that the remorseless logic of monetary union is closer fiscal integration. I believe that this crisis demonstrates that monetary union needs to be underpinned by closer fiscal integration. That is not a new expression on my part; I said nothing novel; the Government have taken this view for some time. We need to ensure that the institutional arrangements are in place to support that. What I think hon. Members on all sides of the House want is a stable eurozone because it will contribute towards economic recovery in the UK.

As joining a single currency is like taking out a joint bank account with the neighbours, when does the Minister think the neighbours will agree how much overdraft they can afford and who gets to pay the bill for it?

My right hon. Friend will recognise that the agreement that was reached in the European Council last week and then later in the summit of eurozone Governments was on what size the bail-out for Greece should be and what the ring fence should be around that. We welcome last week’s announcement. What is very clear, however, is that more work needs to be done on those questions—particularly what the size of the overdraft will be and who will pay for it. We need eurozone leaders to move that forward as quickly as possible.

Part of Europe’s plan to get Europe and the eurozone out of this mess is the introduction of a financial transaction tax. Will the Minister confirm from the Dispatch Box that such a tax could be introduced through qualified majority voting and that this is essentially own resources, just by another name?

I have to tell the hon. Lady that I am not entirely clear what role a financial transaction tax would play in resolving this crisis. The EU’s own impact assessments on that tax demonstrated that it would lead to lower employment and lower growth across Europe. I do not think that that is in any way going to help tackle the problems in Europe when what we need is more investment, more jobs and more growth.

I think we all heard my hon. Friend the Member for Wellingborough (Mr Bone) advocate Greece’s withdrawal from the euro, and a worryingly large number of his Conservative Back-Bench colleagues seem to will the destruction of the euro area. Does the Minister agree that a fragmentation or break-up of the eurozone is not in our economic interest or indeed the national interest?

We have made it very clear that the instability and uncertainty in the eurozone has a chilling effect on the UK economy. What our actions have been driving towards over the course of the last few months is encouraging our partners in the eurozone to take the action needed to tackle the problems so that we can see economic growth strengthened across the whole of the European Union.

I wonder whether the Minister has seen the film “Groundhog Day”. I was here in the early ’90s with another Tory Government, another euro crisis and another Prime Minister battling for his life—the same players, only this time there are about 40 more Tory rebels. It finished up with a Prime Minister being kicked out of office.

I am afraid that I am reminded of “Groundhog Day” every time I hear the hon. Gentleman speak.

Why are the Government advocating fiscal union? I put it to the Minister that the words “remorseless logic” are, in fact, a cover for a policy preference, and that the remorseless logic of the present situation is that fiscal union will be economic dictatorship, that it will fail and that we had better be planning for something else.

I think my hon. Friend would recognise that if a monetary union is to be successful, it requires closer fiscal integration. That is a precondition of the success of monetary union. When the decision was made to opt out of the Maastricht treaty and to keep sterling, one reason for doing so was that monetary union had to be underpinned by fiscal integration. One follows the other as surely as night follows day. That is why I think we were right to take that position then and we are right now to encourage the eurozone, if it wants the euro to be successful, to move towards closer fiscal integration. Frankly, if it does not, it will cause huge economic damage to all of us.

Is it not a matter of plain fact that the Government’s negotiating position and therefore the protection of our national interest is hamstrung because all the time this Minister and his colleagues have to address the Eurosceptics? Britain has got to be involved in these negotiations through the IMF and at Cannes. The Minister needs to face down his Eurosceptics and explain why, if the euro goes down, we lose.

I find the position adopted by Labour Members quite curious. They want us to be at the top table, yet they voted against the increase in our subscription to the IMF, so we would not be at the top table. I believe we have played an important role through European Councils by trying to push our eurozone partners to make progress on tackling problems in the eurozone. We are very clear that matters such as the completion of the single market, competition and financial services should be dealt with by all 27 member states, not by the 17. I believe that this Government are punching way above their weight.

If the remorseless logic of greater fiscal union proves to be true, can my hon. Friend tell us what steps he intends to take to ensure that Britain’s voice is still heard under QMV?

That takes us back to the answer I gave to the hon. Member for Rhondda (Chris Bryant)—that when it comes to discussions about future institutional changes in the EU, we need to ensure that Britain’s interests are safeguarded. Matters such as competition, financial services and the single market should be dealt with by all 27 member states, and we will be relentless in our pursuit of the national interest in that context.

Does the Minister agree that condemnation of the Greek people’s right to have a referendum is entirely incorrect and that they do have that right to hold a referendum; that the people of Greece have suffered greatly through cuts, wage reductions, cuts to pensions and everything else—and they are due to suffer even more—and that it is entirely wrong for the eurozone leaders to try to impose a Government of so-called national unity on the people of Greece to drive through an austerity package without giving the people a choice to decide themselves on their own future?

I do not think anyone in this House is suggesting that we interfere in the decisions to be made by the Greeks.

We would lose our seat on the IMF board; we would lose credibility in international economic debates; and we would lose our influence on measures to solve global economic problems. We would become marginalised—rather like Labour Members when it comes to their contributions to economic debates.

In 2009, when the world faced economic catastrophe after the banking collapse, there was real leadership at the G20 summit in London, which helped to avert a disaster and put Britain back on to a path of growth. Where is that leadership now, and where is the plan for growth?

I thought that the outcomes of that G20 summit were very impressive. I particularly welcomed the achievement of the previous Prime Minister in agreeing a commitment to treble the resources available to the IMF, but the right hon. Gentleman, along with his colleagues, voted against that commitment.

According to the BBC’s economics editor, Stephanie Flanders, the European Commission said this morning that any country that left the euro would also have to leave the European Union. Is that the Government’s understanding of the EU treaties?

I am not a constitutional lawyer, for my blessings, but it is plainly necessary to establish the legal basis for any such action. I am not aware of what the Commission has said, and I think it very dangerous for us to engage in speculation on the subject.

It is obvious that, like many other Members in the Chamber, the Minister has not read the Lisbon treaty, because the hon. Member for Orpington (Joseph Johnson) is right. I give way to no one in my support for the IMF—as is clear from the way in which I voted—and my support for the recapitalisation of the banks, but the reality is, surely, that the ordinary people of Greece will go through a massive amount of pain, whereas the bankers, both here and there, will walk off with the money. We are looking after the banks, not the people, so is it really surprising that the Greek people may want to reject the proposal that the Government were involved in placing on their backs?

We all recognise that difficult decisions are involved in the tackling of fiscal deficits, and those decisions must be made. It is owing to this Government’s actions that our interest rates are similar to those of Germany, while our deficit is at the same level as that of Greece.

May I suggest that my hon. Friend should not listen too closely to what is said by Labour Members, given that this crisis is about debt, and given that the last Labour Government more than doubled the national debt? [Interruption.] Yes, they did.

Having said that, may I ask whether my hon. Friend agrees that the set of measures put together by the euro leaders are nothing more than a sticking plaster? They do not address the central cause of the problem, which is a lack of competitiveness. If countries cannot pay their way, this issue will come back to haunt them.

My hon. Friend is absolutely right. We need fiscal entrenchment across the eurozone to take place in the same way as we are tackling a fiscal deficit here in the United Kingdom. However, we also need measures, in Europe and elsewhere, to promote growth. That is one of the key areas in which the Prime Minister has been influential, shaping a debate in Europe and persuading European leaders to recommit themselves to improving measures to promote growth and bring about the recovery that the eurozone economy needs.

If UK taxpayer money is being paid to the IMF and the IMF is paying towards the eurozone bail-out, how can the Minister guarantee that no UK taxpayer money is going towards the bailing out of the eurozone?

The money that nations contribute to the IMF goes into its general resources. I believe that there are currently 53 IMF programmes, only three of which are in the eurozone. We have made clear that if the IMF needs to increase its resources to tackle some of the global issues that face economies at present, we will listen to its requests.

While I strongly support my hon. Friend’s tough domestic stance on fiscal matters, may I suggest that, in view of the borrowing problems in Italy, the 20% fall in the monetary base in Portugal and similar problems in Spain, there is a strong case for moving the Cannes conference to the gardens of Versailles?

My hon. Friend’s question highlights some of the challenges that are being faced in the eurozone. Wherever the summit is being held—in Cannes or in Versailles—what is important is action arising from it that will put eurozone economies back on the right path.

The Minister has signally failed to answer the questions put to him about the plan for jobs and growth. Will he now tell us exactly how the Government propose to ensure that we get demand back into the economy and tackle unemployment, which is the only real way out of this crisis, and how we are to exercise influence in Europe to secure a similar euro-wide plan?

One of the best ways of putting more money in the pockets of families and giving business men more money to invest in their businesses is to keep interest rates low. Borrowing more, which is the Labour party’s prescription, would simply put our interest rates at risk, so that households would have less money in their budgets and businesses would be strapped for cash. We will take no lessons in how to handle our economy from a party that doubled the national debt.

The IMF is a collective that is there to build greater economic stability. Why should our approach to funding economic stability in Mexico, the Philippines or Peru be different from our approach to funding it in Greece?

My hon. Friend has made an important point about the global role of the IMF. It is there to support economies that face challenging circumstances. There is a range of programmes in 53 states, and it is right for the IMF to have the resources that it needs if it is to help to stabilise the global economy.

Why are the EU leaders so fearful of democracy? In view of the massive cuts that are to be imposed on the Greek people under the deal that was negotiated this week, what sort of democracy would it be if they were denied the opportunity to say yes or no?

I do not think that anyone in the House is suggesting that the Greek people should not be in charge of their own destiny.

Does the Minister agree that the International Monetary Fund should not be expected to do what the European Central Bank is incapable of doing simply because of a lack of political will on the part of eurozone countries?

My hon. Friend has made a good point, but I think it important for the institutions in the European Union to work together to ensure that there is a return to economic and financial stability.

Is not the problem in Greece a lack of growth and no sign of growth in the future? Is not the problem in the eurozone a lack of growth and no sign of growth in the future? Is that not also the problem in the United Kingdom? When will the Government respond to the need for jobs and growth, not just here in the UK but throughout Europe?

There must be structural reforms to remove some of the barriers and blockages to growth, not just here in the UK but throughout the eurozone, and that is why we included a plan for growth in this year’s Budget. The Chancellor will return to those matters in the autumn statement. I note, incidentally, that every time we propose a measure that would help to improve job prospects by tackling regulation and red tape, it is opposed by the Labour party.

Given the interpretation that was placed on his words by the hon. Member for Rhondda (Chris Bryant), will the Financial Secretary confirm that this has nothing to do with a two-speed Europe, and that whatever the speed at which the eurozone hurtles towards fiscal integration, we will not be following it at any speed at all?

My right hon. Friend is absolutely right. We in the coalition Government have made clear our view that we do not want to be part of the euro, and therefore need not take part in any process of closer fiscal integration.

The Financial Secretary said that the Prime Minister would make a statement on Monday. Will it include the issue of the bilateral loan to Ireland, and will the Financial Secretary insist that if it does, it will address the way in which the National Asset Management Agency is now treating businesses here as a result of a soft loan from the United Kingdom?

I am not going to tell the Prime Minister what he should or should not say on Monday, but I am sure that he will have heard what the hon. Gentleman has said.

Order. As the House knows, there is intense interest in this subject, which I am keen to accommodate. However, I must now insist on single short supplementary questions without preamble, and ask for the wonderfully succinct replies from the Minister to continue.

Does the Financial Secretary agree that, while much progress has been made over the last 18 months—demonstrated most recently by this week’s excellent growth figures—we need measures to protect us from the implosion of the eurozone? What does he think are the best options to shield us from wider economic turbulence in that direction?

I think that what we need is the implementation of the three-point plan that was agreed last week in the eurozone.

In the wake of the eurozone crisis, the latest polls show that the UK Independence party is within 1% of replacing the Liberal Democrats as the third party in British politics. Is not the relentless logic of both that and the rebellion of the 81 a Prime Minister lurching ever further to the right and isolationism on Europe?

That is a slightly bizarre question from the hon. Gentleman, from whom we expect better. We are engaged in the debates in Europe. We need to make sure we stand up for Britain’s interests in Europe, which is why we are keen that areas of vital national economic interest—such as financial services, the single market and competition—are dealt with by all 27 member states rather than just the eurozone countries.

I am sure that my hon. Friend is aware that there are only 52 shopping days left before Christmas, so for ordinary Greek families now is a terrible time to be facing such economic uncertainty. Does he agree that Governments must live within their means and deliver stable financial policies for their people?

My hon. Friend is absolutely right. Fiscally prudent policies that tackle the deficit and get interest rates lower must be implemented across the eurozone, so countries enable their economies to grow.

British banks are responding to the increased instability not only by tightening controls, but by tightening credit. How will the Government respond to the reduction in liquidity being made available to British business and ensure that firms are able to borrow and flourish?

As I said, British banks are better placed as a consequence of measures taken to strengthen their capital and improve their holdings of high-quality liquidity. We have also agreed lending commitments with Britain’s major banks through Project Merlin, and the Chancellor has said he will announce further measures to improve the availability of credit in the autumn statement.

Does my hon. Friend agree that we can only support a financial transaction tax if it applies internationally, rather than just to Europe? Does he further agree that because there is no international consensus in favour of such a tax, it will not be introduced?

We have said we are not against a financial transaction tax in principle, but it does need to be applied globally. The EU’s own impact assessment demonstrates that an EU-only financial transaction tax would destroy jobs and increase unemployment. It is a bad idea at a time when Europe needs jobs and growth.

Faltering economic growth is damaging economies not only in the EU, but across the globe, yet the Financial Secretary has today refused to acknowledge the damage his Government are doing to economic growth. When will they come up with a plan B?

Well, the plan B proposed by the Labour party would increase borrowing by £20 billion a year, potentially lead to higher interest rates—which would affect families throughout the country such as by adding to their mortgage payments—and increase the costs on business. I do not think this economy needs a plan B from the Labour party.

Standard & Poor’s has recently reconfirmed the UK’s triple-A credit rating, but has made it clear that there will be downward pressure on that if the Government falter on fiscal consolidation. Yet is that not exactly what the Opposition are exhorting the Government to do: to falter on fiscal consolidation?

That is absolutely right: that is what Standard & Poor’s said in its report last month. When we came into office, the country’s credit rating was on negative outlook; now it is on stable outlook. That is a consequence of the action this Government have taken to tackle the mess left by the Labour party.

Have the Government drawn a line in the sand for the amount of money they will not exceed if asked by the International Monetary Fund to contribute to a greater extent specifically to deal with the euro crisis?

What we have said is that it is important that the IMF has the resources it needs to tackle the problems of the global economy. We have yet to receive a request from the IMF, but once we do so, we will respond to it appropriately.

My hon. Friend has mentioned the abolition of the euro preparations unit. In the current circumstances, will he assure the House that there is no prospect of the unit being resurrected as that would be a complete waste of public money?

My hon. Friend is absolutely right. I can think of far better ways to spend the money the previous Government wasted on preparing for the euro.

Will my hon. Friend assure the House that before the IMF gives any money to bail out the eurozone, sufficient stringent financial conditions are put in place to ensure that there is a realistic prospect of that money being repaid?

My hon. Friend makes an important point. Stringent conditions are linked to the packages offered to Greece, Ireland and Portugal, to ensure that the money is used well and wisely, and that the structural reforms that are needed to generate growth in those countries are implemented.

I am very pleased that my hon. Friend has said that Her Majesty’s Government are preparing contingency plans for the possible break-up of the eurozone, but can he confirm that they will not include the possibility of our joining the euro, as seems to be still the official policy of the Labour party?

I do not think there is any intention for us to join the euro at a time when it is breaking up. The only party in this House that seems to express an interest in joining the euro is Labour, whose leader, when asked when they would join the euro, said:

“It depends how long I’m prime minister for.”

Does my hon. Friend agree that one of the most important lessons we can learn from this crisis is that if there had not been a change of Government in this country in 2010, we would be talking today in the Chamber about the UK sovereign debt crisis, not the Italian and Greek crisis?

My hon. Friend is right. If we had not taken the tough action we took when we came into office, the UK could be in the firing line, not just Greece and other eurozone member states.

Two-year Greek interest rates reached 100% this morning. Will the Financial Secretary remind everybody how important it is for jobs and growth that despite the fact that we have a higher deficit than the Greeks, our interest rates are closer to those of the Germans?

My hon. Friend hits the nail on the head. It is because we took that tough action and are tackling our deficit, and have a credible plan for putting our public spending back on a firm footing, that we have lower interest rates than countries with a lower deficit than ours.

This week we have witnessed the spectacle of the Greek Prime Minister being summoned, like a naughty schoolboy, to President Sarkozy’s study for having the temerity to call a referendum in order to get the support of his people for the proposed austerity measures. Given that our deficit and debt levels are higher than Greece’s, what does my hon. Friend think would be happening if we had adopted the policies of the Opposition?

I think we would find that our credit rating would be under pressure, as Standard & Poor’s suggested in its report last month, and we know that when credit ratings are downgraded, the natural consequence is higher interest rates, which hits families and businesses and makes recovery harder to achieve.

The Leader of the Opposition does not believe that the EU has too much power. Will my hon. Friend confirm that we will never go into the euro?

My question is about Italy. Its interest rate is floating upwards and currently stands at about 6.5%, which is unsustainable. Will the Minister give us his views on Italy’s problems, especially with regard to its just paying off its interest rather than repaying its debt?

Tempted though I am to respond to my hon. Friend’s question, given the uncertainty in international markets I do not think it is helpful for Ministers of any country to give a running commentary on the finances of others.