With permission, Mr Speaker, I would like to make a statement on last week’s G20 summit. There were three key aspects to the summit. First, agreement on an action plan for growth and jobs, with specific countries agreeing to do specific things in order to maximise overall growth in the world economy. Secondly, the G20 continued with its work to identify and remove some of the key obstacles to growth, including imbalances between surplus and deficit countries, to stop the slide to protectionism, to improve global governance, and to protect the world’s poorest from the current economic problems. Thirdly, there was, of course, the main issue of instability in the eurozone. Let me take each in turn.
First, the action plan for growth and jobs. This includes many of the things that Britain is already doing, from fiscal consolidation and monetary activism to removing the barriers in the way of business and job creation. The G20 recognised yet again the importance of implementing
“clear, credible and specific measures to achieve fiscal consolidation.”
It also clearly identified a group of countries that have the space to borrow for additional discretionary measures. I have to tell any Members of the House who would like to see the UK borrow more that no one was proposing that the UK should be in that group of countries. We are determined to deal with our debts, not to leave them to our children and grandchildren. The need to press on with our plan for fiscal consolidation has now been recognised by the G20, as well as by the International Monetary Fund and the OECD.
Secondly, obstacles to growth. The imbalances that did so much damage in the run-up to 2008 are growing again. This matters, because if we are to maximise global growth and avoid some of the speculative bubbles of the past, countries with a trade surplus need to increase domestic demand and ensure that they keep their markets open, while those with a trade deficit have to undertake structural reforms to improve competitiveness. There was some real progress. For instance, Russia is making changes to its foreign exchange regime, and China agreed to increase its exchange rate flexibility. Both of those are reflected in the communiqué, but more needs to be done.
The greatest mistake that the global economy could make is to enter into a slide towards protectionism. The World Trade Organisation report sets out all the protectionist measures that have been taken in G20 countries over the last year, and they are a cause for concern. So the G20 reaffirmed its pledge not to take protectionist actions, committed again to roll back any new protectionist measures that might have arisen, and reaffirmed its determination to refrain from competitive devaluation of currencies. We also welcomed the fact that Russia, the last G20 country outside the World Trade Organisation, is now set to become a member of the WTO by the end of the year.
On Doha, I have said it is time to look at working with groups of countries in so- called “coalitions of the willing” to drive new trade deals. Together with five other G20 leaders, I wrote to President Sarkozy ahead of the summit to call for new and innovative approaches to trade liberalisation. That is what was agreed in the communiqué.
On improving global governance, I presented a report, which I am placing in the Library today. We secured agreement for the key proposals. First, we agreed that the G20 should continue as an informal, flexible gathering rather than attempting a complete reordering of the system of global governance. What is needed is not new institutions, but political will. Secondly, we agreed that we should make the now established Financial Stability Board a separate legal body to give it the authority and capability that it needs. Thirdly, we agreed that we should strengthen the WTO’s role as the guardian of the world trade system. Further progress was also made on cracking down on tax havens and tax evasion and on having a proper regulatory system for banks to make up for the woeful system that has existed in so many countries, including ours, over the last decade.
On development, Bill Gates gave a presentation suggesting ways of mobilising resources to help the world’s poorest. This included helping some developing countries to help themselves through proper systems for collecting taxes and transparent revenues for natural resources. At the same time, he gave strong support to the UK’s own record on the development agenda.
On the financial transactions tax, I have been clear all along that we are not opposed in principle to such a tax if one could be agreed at the global level, but we will not unilaterally introduce a new financial transactions tax in the UK. Neither will we support its introduction in the European Union unless it is part of a global move. Britain has introduced a bank levy and we are meeting our global agreements on overseas aid. If other countries want to introduce new financial taxes at home, including to raise revenue for development, that is for them to decide. What they should not do is try to hide behind proposals for an EU tax as an excuse for political inaction on meeting targets, whether they be for spending on development or, indeed, climate change.
The current proposals for a financial transactions tax in Europe are so deeply confused that different European countries, and indeed European institutions, have talked about spending the revenues of such a tax in five different ways: on development, on climate change, on social policy, on resolving the banking crisis, and, most recently, as the best way to supplement the EU budget. I have to say that that would be a bit of a stretch even for Robin Hood.
Let me turn, finally, to the problems in the eurozone. It is clearly in our national interest for the eurozone to sort out its problems. As the Chancellor has said, the biggest single boost to the British economy this autumn would be a lasting resolution to the eurozone crisis. That is why Britain has been pressing the eurozone to act—not just at the G20, but for many months. The deal in Brussels 10 days ago was welcome progress, and it reflected the three essential elements that Britain has been calling for: first, reinforcement of the bail-out fund by eurozone countries to create a proper firewall against contagion; secondly, recapitalisation of weak European banks; and, thirdly, a decisive resolution to the unsustainable position of Greece’s debts.
The Euro area countries now need to do everything possible to implement their agreement urgently. Of course, the rest of the world can play a supporting role, but in the end this work has to be done by the eurozone countries themselves. No one else can do it for them. As I have said before, Britain will not contribute to the eurozone bail-out fund—whether that be through the European financial stability facility or a special purpose vehicle. And while the International Monetary Fund may administer a fund, it cannot and will not contribute to it.
The IMF does, however, have a vital role to play in supporting countries right across the world that are in serious economic distress. There are 53 countries currently being supported by the IMF, of which only three—Greece, Ireland and Portugal—are in the eurozone. It is essential for confidence and economic stability that the IMF has the resources it needs. So, at the G20, Britain, the US, China and all the other countries round the table made it clear that we are willing in principle to see an increase in IMF resources to boost global confidence. There was no agreement about the timing, the extent or the exact method through which this could be done. However, Britain stands ready to contribute within limits agreed by this House. Those who propose that we walk away from the IMF, or who oppose even the increase in IMF resources agreed by the last Government, are not acting responsibly or in the best interests of Britain.
It is in our national interest for countries across the world that are in distress to be supported in their efforts to recover. The collapse of our trading partners, whether in the eurozone or not, would have a serious impact on our economy. Businesses would not invest, British jobs would be lost, and families across Britain would be poorer. Through the IMF, we can help other countries in a way that does not affect our own public finances—but let me be clear: it is for the eurozone and the European Central Bank to support the euro, and global action cannot be a substitute for concrete action by the eurozone. The G20 withheld specific IMF commitments at this stage precisely because we wanted to see more concrete action from eurozone countries to make their firewall credible and to stand behind their currency. In short, the world sent a clear message to the eurozone at this summit: “Sort yourselves out and then we will help, not the other way round.”
These are very difficult times for the global economy. The Government are completely focused on one objective: to help Britain to weather the storm and safeguard our economy. Because of the tough decisions that the Government have already taken to get to grips with our deficits, Britain has avoided the worst of this stage of the global debt crisis. In 2008, under the last Government, UK bond yields were about the same as those in Greece; today, although we have the second highest deficit in the EU—second only to Ireland’s—our bond yields are almost the same as those in Germany, and around the lowest that they have been since world war two. That is because we have a credible plan to deal with our debts, and the resolve to see it through. The situation in Italy further emphasises the importance of a credible plan to deal with debts and ensure confidence in the markets more generally.
The eurozone must now do what is necessary, and see through the agreement that it reached in Brussels 10 days ago. Britain, and all our G20 partners, will continue to press for that to happen. I commend my statement to the House.
I thank the Prime Minister for his statement, but I have to say to him—what a complacent statement from an out-of-touch Prime Minister! Anyone listening to him would think that the G20 summit had been a great success, but it was not.
Let me ask the Prime Minister about the three areas in which the summit should have made progress: the eurozone, reform of our banking system, and economic growth. On the eurozone, the Chancellor said in mid-September:
“'The eurozone has six weeks to resolve this political crisis.”
The six weeks are up, but there is no clear solution on financing. How much, from whom, and in what circumstances? None of those questions are being answered. Now we see the crisis in Greece spreading to Italy, and no plans for jobs and growth—just more austerity.
Can the Prime Minister tell us why European and G20 leaders failed to find a solution to the problems of the eurozone? Given that the Chancellor told us from Cannes that he and the Prime Minister were
“right at the heart of the discussions here”,
people will be struck by the Prime Minister’s tone today. Progress that was made at the summit was, of course, down to him—and, as always with this Prime Minister, failure is nothing to do with him.
Does the Prime Minister not now regret that he did not try harder and earlier to engage in the discussions and push for an agreement, rather than standing aside and claiming that Britain was a “safe haven”? If we were indeed at the heart of the discussion, can the Prime Minister say what responsibility he takes for the failure of the eurozone? Given the importance that all this has for Britain, can he tell us specifically what he plans to do in the coming days to secure an agreement?
Let me turn to the funding for the IMF. The Prime Minister said in his press conference on Friday, and again today,
“you can’t ask the IMF or other countries to substitute for the action that needs to be taken within the eurozone itself.”
We agree with that position. The sensible step of increasing resources for the IMF should not be taken to make up for inadequate eurozone action.
The Prime Minister has said that he would not support the direct use of IMF resources to top up the European financial stability facility, but can he also categorically rule out the use of IMF resources indirectly, in parallel, to make up for insufficient funding from the EFSF or the European Central Bank? Can he also square his position that his commitment is within agreed resources with the comment of the managing director of the IMF that there is “no cap…no ceiling” on IMF resources?
Let me turn to the issue of banking reform, and specifically the global financial transactions tax, which we support and believe should be implemented if we can reach agreement in all the major financial centres. It was on the agenda in Cannes, although no real progress was made. I have to say I could not tell from his statement whether the Prime Minister really supports it; after all, “not opposed in principle” is hardly a ringing endorsement. I do not think we should be surprised, because the week before the summit negotiations had even started, the Chancellor was writing to business leaders casting doubt on whether any such mechanism offers an efficient way to raise revenue. So can the Prime Minister tell us whether he actually argued for a global financial transactions tax at the summit, and can he tell us what steps he will be taking in the weeks and months ahead to advance its cause?
Turning to growth, the first substantive paragraph of the communiqué states:
“Since our last meeting, global recovery has weakened, particularly in advanced countries, leaving unemployment at unacceptable levels.”
That is certainly true in this country, where growth has flatlined and unemployment is at a 17-year high. So does the Prime Minister understand why people are so disappointed by the failure of the summit?
The Prime Minister talks about the words in the communiqué about trade and imbalances, but action on trade and imbalances will take years to implement. He also mentions undertakings by various countries who have scope to take action, but it is a very important point in the communiqué that they will be implemented only if
“global economic conditions materially worsen.”
People around the country will be wondering: how much worse do they need to get for action to be taken? He says, by the way, that nobody is arguing for Britain to change course, but the IMF said only last month that if the British economy continues to undershoot, the Chancellor should do just that. How much longer does the country have to wait for him to change course?
After the April 2009 G20 summit the Prime Minister said:
“The glitz and glamour of this week must seem very remote to the small businessman who still can’t secure the credit to stay afloat—or the mother worrying if she’ll be able to keep a roof over her children’s heads.”
The 2009 G20 summit succeeded, and this one failed. For the young person who is unemployed, for the business that has seen demand for its goods disappear, and for the shops that have seen people leaving the high street, this summit achieved precisely nothing. That is why the Prime Minister looks so out of touch when he claims that the summit has made a difference on growth. But is not the real problem this: the Prime Minister does not really believe that we need a global plan for growth? He thinks the answer for the world is collective austerity, just as he used to claim that the answer is austerity at home.
People wanted action from this summit, and they did not get it. Those struggling to find work, seeing their living standards squeezed, asking why the economy is not working for them, deserve better. Is not the truth that this is a do-nothing summit from a deeply complacent Prime Minister, out of touch with the real needs of our economy?
Honestly, I do not know who writes this rubbish! I liked the bit when the right hon. Gentleman quoted my response to the 2009 summit: I have to say that if the 2009 summit was such a success, why did the Labour party vote in the House of Commons against one of its key conclusions—the idea of increasing IMF resources? He talks about regulating banks, with no recognition of the failed regulatory system that he oversaw for a decade. He talks about the eurozone, with no recognition of the fact that Labour had a “national changeover plan” to get the whole of Britain to adopt the euro. Above all, let us be clear: if we had listened to his advice, we would not have been in Cannes discussing a Greek bail-out; we would have been at the IMF discussing a British bail-out.
Let me remind the right hon. Gentleman of the figures. In 2008 Greek and British bond yields were both 4.5%. Since then, in the UK that rate has halved, whereas in Greece it is up by six times. That is because they did not have a credible policy for deficit reduction, and we do.
Let me come back to the issue of the IMF, because what we are seeing from the Labour party is breathtakingly irresponsible. Let us be clear about its position on the IMF, and let us remember that that is an organisation founded by Britain, in which we are a leading shareholder, and also an organisation that rescued us from Labour in the 1970s. Labour’s position is, first, to vote against the increase in resources agreed by the G20 under their own Government. They called it a “triumph” at the time, yet Labour Members trooped through the Lobby in a complete display of opportunism. But it gets worse, because now they are saying that they do not want IMF resources for any eurozone country. Are they saying that they want to take the money from Ireland and Portugal? They would have turned up at the summit, where every country was talking about increasing IMF resources, and said that on no account would Britain support that. How ridiculous. They are saying to eurozone countries, which also contribute to the IMF, “You’re never, ever allowed to seek its assistance.” If they meant that, I would take it seriously—but this is all about politics: they are putting the politics ahead of the economics. We know that that is the case with the shadow Chancellor: he only ever thinks about the politics. The question for the leader of the Labour party today is: are you a bigger politician than that? I am afraid that the answer is no.
Did Chancellor Merkel tell my right hon. Friend why the European Central Bank is not fully discharging its duties as the euro’s lender of last resort? It is not providing massive quantitative easing, not moving towards near-zero interest rates and not urging President Sarkozy to renationalise the leading French banks before the credit crunch closes on France. Chancellor Merkel knows very well that it was not inflation but high unemployment which, in my lifetime, brought down the Weimar republic, and will do the same for the European Union.
My right hon. Friend speaks hugely powerfully about this issue. He is right that we must not allow the IMF to substitute for what the ECB and the other institutions of the European Union need to do; that is vital. It was one of the reasons why, in the end, all the countries of the world that were prepared to see an increase in IMF resources wanted to see more done by the eurozone and by the ECB. I have discussed this with Chancellor Merkel on many occasions. My right hon. Friend will know as well as I do of the huge hold-back that there is in Germany about what a central bank is, and what it should do. But I do believe that, as it says in the communiqué, you have got to have the institutions of the eurozone fully behind the currency in order to save it.
Understandably, the Prime Minister is putting a brave face on what happened last week. On any viewing, the G20 failed to reach its aims on growth, on the imbalances or on the eurozone crisis, which is as bad now as it was a few days ago. I see that there were reports that the G20 is planning to meet again, perhaps as early as in the remaining part of this year or at the beginning of next year. Is that right? If so, would the Prime Minister bear it in mind that in some ways, no summit is better than another failure? The G20 may not be perfect, but it cannot afford another meeting where it singularly fails to come up with the goods.
The right hon. Gentleman is entirely right: meetings that do not have a proper conclusion can often add to the problem rather than solve it. What is required is the political will for eurozone countries to act. I was very clear after the G20 meeting that it had not achieved a breakthrough on the euro—that is absolutely clear. Some progress has been made in terms of establishing the three elements that need to be put in place—the firewall, the recapitalisation and the Greek write-down—but much more has to be done. There may well be a meeting of G20 Finance Ministers, but I agree with the point that the right hon. Gentleman makes: it is progress and resolution of these issues that is required, rather than another meeting.
The European Commission has estimated that implementation of the financial transactions tax would reduce gross domestic product in the euro area by 1.8%. Of course, that would hit the UK disproportionately hard at a time when we need more growth, not less. Does the Prime Minister agree that, of all times, now is not the appropriate moment to consider such a controversial measure?
It is important for people to see the European Commission report on the financial transactions tax, which shows the figures that my hon. Friend talks about, and shows that it would cost jobs. As I have said, if we could achieve global agreement for a tax of that nature there would be a case for it, but it is very hard to see that happening. I think that the focus of politicians in Europe should be to meet the promises they have already made about development rather than to hide behind a financial transactions tax that they know is very unlikely to come into being.
The frustration and impatience that the Prime Minister expressed on Thursday and Friday last week were extremely well merited, and it would be as well if he came here and repeated his concerns about the failure of leadership across Europe at this vital time. In that context, though, is it not a tragedy that when Europe does need a voice for reform—for example, on budgetary policy, which is going to be a major issue in coming years—he has dealt himself out of the game with a focus on the repatriation of powers, which, frankly, is not the issue that is going to make or break the European economy?
I do not agree with the right hon. Gentleman, for this reason: I have managed to assemble a coalition for budgetary restraint in the European Union, and this year Britain, France, Germany and others have all agreed to freeze the EU budget in real terms. I would like to go much further, but I have to say that a freeze in the budget in real terms is not something we have been able to achieve in recent years, and is a breakthrough, so I do not accept the point about looking at rebalancing powers in Europe and fighting for a deal on the budget. We can do both.
Given that the single market, including the City of London, is governed by qualified majority voting, how does the Prime Minister propose to achieve a majority to protect our interests in the context of the fiscal union that he advocates?
First, we need to disconnect the issues that my hon. Friend raises. The issue of the single market and the threat to the City of London and Britain’s financial services is a real threat. We have to work extremely hard to build alliances in the single market and in the European Council to stop directives that would damage our interests. I think it is extremely important that we do that work. Financial services matter hugely to this country, and this is one of the areas that I want to ensure we can better safeguard in future.
I do not support fiscal union. I do not think that Britain ought to join a fiscal union, as I do not think that is the right move for us. However, we have a single currency that is quite dysfunctional, and one way in which it could be made more functional is greater fiscal union. That is a statement of fact rather than our saying that we want in any way to join it: we do not. We want to safeguard the interests of Britain by making sure that the single market works for us.
Is it really in the best long-term interests of this country for the Government consistently to present the United Kingdom as the neighbour from hell with regard to the European Union—not least with regard to the Tobin tax? The issues on which the European Union wishes to spend money are the issues on which the Prime Minister’s constituents and mine, and citizens around the world, wish to see money spent—not least on alleviating suffering in the third world and on climate change. Will he change his mind on this issue?
With great respect to the hon. Lady, this Government—and to an extent the Governments whom she supported—have made and kept promises about things that our constituents care about, such as development and climate change. We are meeting those. As for being a good neighbour, one of the most unneighbourly acts someone could perform when the whole world is looking at growing the resources of the IMF to safeguard the global economy is to walk away from that and vote against it—something that I know that quite a lot of Labour MPs, probably including some on the Front Bench, are rather ashamed of. Such an act would show them to be not only not a good neighbour, but on another planet.
As there is a danger of the euro crisis now spreading to Italy, can the Prime Minister tell me what the leaders of euroland have said they will do by way of buying Italian bonds or offering subsidised loans to Italy to head off the crisis in the market there?
My right hon. Friend asks an important question. It goes back to the question that the Father of the House asked, about the actions of the ECB. The ECB has been intervening in markets and buying bonds of countries that are under pressure. That is what makes it so difficult to understand why some in Europe are so opposed to the ECB being more of a monetary activist, if I could put it that way. The key with Italy—everyone should be careful about speculating about another country—and the point I made in my statement is that Italy must demonstrate that it has a credible fiscal path. That is as much about the confidence of the markets that it will be able to pay its deficit and pay its debts. If it can do that, its interest rates will fall.
The door marked “Exit from the eurozone” is now clearly in view and a number of eurozone states are moving inexorably towards it. Is it not obvious that until those states can recreate their own national currencies and find an appropriate parity for those currencies, they will not recover?
The hon. Gentleman refers principally, I think, to Greece. That is an issue that the Greeks have to decide themselves. They have been offered a deal that writes down their debts and can enable them to stay in the single currency; it is their decision whether to take that road or to take another road. The only thing I would say to Members of the House who are deeply sceptical about a single currency, of whom I am one, is that we should be very careful to recognise that countries leaving a single currency can cause all sorts of knock-on effects and problems for other economies, including our own. We should not see it as some sort of painless easy option for a country to fall out of the euro. It would have very real consequences for other countries, including our own, and we have to think about that in that context.
Given the role that the big banks played by being overstretched and therefore triggering the present financial crisis, can the Prime Minister tell us what progress he made in persuading his colleague countries in the G20 to follow the proposal that we made and that the Vickers commission recommended to break up the banks that are too big to fail, so that in no economy are the big financial institutions able to hold a gun to the state and to the taxpayer?
Obviously, many people will comment on the ultimate failure of the G20 to resolve the eurozone crisis, but the G20 has made good steps forward in areas such as trying to roll back protectionism, and particularly on the issue that the right hon. Gentleman raises about globally significant financial institutions and the impact that they can have. The approach that Vickers recommends is fully in tune with what other G20 countries are recommending.
Does the Prime Minister realise that the British people out there are listening to the sheer effrontery of this British Prime Minister suggesting a growth plan for Greece, Italy, Spain and Portugal, while here at home he sticks rigidly to high inflation and mass unemployment? Hypocrisy by the bucketful!
Does my right hon. Friend agree that one of the biggest single fillips to global growth would be breaking the deadlock over the Doha round? Can he say how confident he is now that the approach of willing coalitions will help make progress on this issue under the Mexican presidency?
I thank my hon. Friend for that question. The point about Doha is that it is not progressing in the way that it was meant to. There is a gridlock between many of the developing countries and, particularly, countries such as America that do not see enough in the round for them. So it seems that the only way forward, if we want to see more global trade deals that are good for all those participating, is to have coalitions of the willing—countries that want to push ahead. That is what has been sanctioned at the G20, and that is what we can now push ahead with.
Greece, Spain and Portugal already are, and Italy probably is, insolvent within the European monetary union. None of these countries is likely to regain its competitiveness while it is part of the single currency. Does the Prime Minister not think it would be better for the IMF to give them extra funds only once they have left the single currency, rather than while they are part of the EMU?
The hon. Lady makes an important point, but it is not necessarily fair to lump all those countries together. Some of them, such as Italy, have huge deficits in terms of the ratio of debt to GDP, but have managed to compete within the single currency, so I am not sure that the way in which she groups those countries together is entirely fair. The important role of the IMF is not to support a currency system, not to support the eurozone, and not to invest into a bail-out fund. The IMF has to be there for countries in distress. That is why everyone in the House supported, for instance, the IMF programme that went into Ireland. The IMF went in as a partner of other countries, but it did go in. If she turns her question round the other way, it would be extraordinary, would it not, to say to eurozone countries, “You are shareholders in the IMF, you contributed to the IMF, but when you’re in distress you can’t get any money from the IMF at all”? That would be an extraordinary position—but it is one that seems to have the support of those on the Labour Front Bench.
Has not the avoidance of a concentration of political and economic power on the continent been a cardinal feature of British foreign policy for 300 years? How then is it in our interests to facilitate the creation of a single fiscal and monetary union that will have enormous power over us, but over which we will have very little influence?
My hon. Friend asks a question with a broad historical sweep. We are suffering at the moment from a single currency that we are not a member of, but that has some serious structural faults. It is in our interests that those faults are resolved, and one way of helping to do that would be to have a greater pooling of fiscal sovereignty among the members of the single currency. I always felt that that was necessary and was going to happen, which is one reason why I never supported the single currency. However, I do not think that we can stick happily with the status quo when the single currency is having a chilling effect on our economy, through the crisis, and not seek some sort of resolution.
A few years ago the President of Yemen was invited to the G20, but the country now has the world’s third highest rate of malnutrition. What additional help can Yemen be given as a result of the G20 meeting? Would the Prime Minister be happy for some of the IMF money he has just given to go to Yemen?
First, we have not yet given any IMF money. There was no agreement on how much should be given, exactly when it should be given or in what way. The world was saying that it stood ready to support the IMF. The IMF has supported countries like Yemen in the past and, as the right hon. Gentleman knows, we have put development aid into Yemen. The biggest challenge in Yemen is the lack of effective governance, and I think that what Bill Gates was talking about—proper systems for raising taxes and for transparency in Government revenues and in revenues from extractive industries and minerals—are the keys to helping such countries along their way.
Back in July the Financial Secretary to the Treasury told a Committee of this House, with regard to IMF obligations:
“We have an agreement to fund up to £20 billion, broadly speaking.”—[Official Report, Second Delegated Legislation Committee, 5 July 2011; c. 9.]
Pretty broad, it turns out. We now hear that the figure is closer to £40 billion. Does my right hon. Friend agree that it is vital to level with the British people, with no weasel words or sophistry, and that Ministers have an obligation to be absolutely straight about what they plan to do with other people’s money?
Let me be absolutely clear about this. There are two sorts of money that the UK provides to the IMF: money through our quota, which is effectively through our shareholding, and money through loans and other arrangements. There have been three votes in this House in the last three years on all the elements of the IMF money. As I have said, if it comes to giving extra support for the IMF, we want to do that within the headroom that has been set.
Are we not really dealing with a sophisticated form of Russian roulette, in which the Prime Minister tells us on the one hand that he does not think that it is right for eurozone countries to have their funding from the IMF cut off, but says on the other hand that at this stage there should be no additional money from the IMF? When will the stage be right for that additional IMF money?
There are 53 IMF programmes around the world, only three of which are in the eurozone, so in part it is a judgment for the IMF about when it needs to replenish its resources. Let me be clear about what needs to happen in the eurozone countries. They have to sort out the problems of the euro: they need that firewall, and it is Europe that effectively has to provide it. They need that recapitalisation and the demonstrable and clear write-down of Greek debts. Those are the things that they have responsibility for. We have responsibility, as an IMF shareholder, for bulking up the IMF finances at the right moment. I do not see that as Russian roulette; it is just very sensible economics and politics.
Can my right hon. Friend tell the House what advice he has received on the consequences of failing to pay our IMF subscriptions, as so irresponsibly advocated by the Opposition?
My hon. Friend makes a very good point. I am not entirely sure what would have happened if we had turned up at the G20 having voted down the deal from the London G20 on increasing the IMF resources. First of all, we would have declined to implement one of the key findings of the last G20, and then we would have turned up and said that we were not prepared to see any increase in IMF funding for anything else. Britain would have been completely isolated and left out. The reason why the Opposition are talking about this is that it is all about the politics and nothing to do with the economics, and they know it.
(Dundee East) (SNP): The Prime Minister said that the UK would not fund the EFSF, but it remains one of the eurozone’s most powerful tools, and there are two new powers proposed for it—to insure newly issued sovereign debt, and to spin out investment trusts to buy that debt. Do the Prime Minister and his Government believe that those powers will be enough to leverage the EFSF up to the €1 trillion or so required to give it the firepower that it needs?
There are still real difficulties with that. The EFSF and the idea of a special purpose vehicle were set out at the eurozone meeting 10 days ago, but the problem is that since then we have not seen enough detail on how exactly those funds would work and how they would be levered up. You need—I have used “bazooka” before—a bazooka big enough to convince people that you will not have to use it, and that is what the eurozone needs to do, but it has not yet completed that work.
One of the few advantages of the ERM was that you were able to get out of it, but one of the issues with the euro is that there is not a mechanism, properly and legally, for leaving it. If a country wanted to leave the euro, of course it could, but in the end this is an issue for the Greeks. They have to decide: do they accept the deal on the table that cuts their debt, and stay in the euro, or do they take a different path? The point I have been making is that they have to make up their mind for the rest of the world to move on.
Was there any discussion at the G20 about the unaccountable power of the rating agencies to decide the future of national economies, or about the massive profits being made on short-term loans out of the poverty and austerity of Greece, Portugal, Spain and Ireland—any discussion about control over the banking system, rather than bowing down to it?
There were concerns expressed, and they are frequently expressed, about the role of the ratings agencies and the way they are regulated. Sometimes, they come from politicians who have had a particularly rough time with the ratings agencies, but it is very important that we use organisations such as the Financial Stability Board to make sure that we get the answers right, rather than do it according to political fiat.
My hon. Friend makes an important point, but that is quite a difficult ask, because there is of course important ongoing work on contingency plans, but the more we discuss and speculate on the nature of another country’s currency and economy, the more we could damage their interests. So, I will think carefully about what he says, but it might be difficult to air some of those issues in public.
The Prime Minister knows that the IMF currently gives 32.4 billion special drawing rights—about £32 billion—to the eurozone to prop it up, so how can he justify giving more British taxpayers’ money to the eurozone via the IMF when there are people starving in Africa and people cannot pay their heating bills in Britain?
No country has ever lost money lending it to the IMF. The IMF is, in a globalised world, a vital institution for supporting countries that get into deep economic distress, and, if we were to walk away from it and just to allow trading partners—in the eurozone or outside—to collapse with no one to help them, that would mean British jobs lost and British businesses going bust. It might give you a five-second soundbite on the news in order to try to give you some political advantage, but it would be completely irresponsible.
I agree with my right hon. Friend that Greece’s remaining in the eurozone is a matter for the Greek Government, and that there is no free hit for the break-up of the euro, but will he take time to read the Centre for Economics and Business Research paper, which points out that, for Europe as a whole and the United Kingdom in particular, our economy will be growing faster in two years’ time if the euro breaks up than it will if we try to keep the currency going?
I have seen reports of the piece of work that my hon. Friend speaks about, and perhaps I will have time this evening to read it at greater leisure. We can look at the economic experts and what they say, but there is quite a strong consensus that the consequences of a country falling out of a single currency zone, where banks and businesses are very interrelated, are very serious for all the members concerned. As I say, if it happens, we will have contingency plans in place and we will have to manage them as best we can, but no one—however sceptical they are about the euro—should think there is an easy way for a country to leave.
Now that the Greeks will have a new Government who will ratify the 26-27 October agreements, and as the Group of Twenty is an informal grouping, would it not be appropriate, where there is agreement, for the group’s Finance Ministers to get together to help the European financial stability fund put together its firewall under the Sarkozy presidency?
The G20 Finance Ministers might have to meet again, but, as I said in answer to the right hon. Member for Edinburgh South West (Mr Darling), only if a new set of arrangements is being put in place. Part of the problem in Europe is that, so often, meetings are scheduled without proper thought about what the outcome will be—about what will be achieved. That has been one of the things that have caused a huge amount of market turbulence over recent months.
Figures out today show that EU productivity is falling at its fastest rate since 2009. The only big economy to record an expansion in output per worker is the UK. Why does the Prime Minister think that the United Kingdom can borrow at a 0.5% interest rate for one year’s money, compared with 4.7% for Spain and 6.3% for Italy?
My hon. Friend makes an important point. First, in getting greater competitiveness across Europe, this is the most important thing that Europe could be doing right now: completing the single market, completing the market in energy, completing the market in services and making sure our economies are competitive. The point he makes about the bond market is vital, too. The fact is that if you do not have credibility, you cannot borrow money at low interest rates, and if you do not have credibility, interest rates go up. That would be the worst thing to hit your economy.
At summit after summit, the Prime Minister has argued to support a monetary union he does not really think is appropriate for this country and in which he does not believe, so that stability can be brought to Europe and the world. That has failed. How many more failures will it take and how many more summits will there be before he argues for what is really right for Europe: for those countries to return to their original currencies?
I have sympathy with the hon. Gentleman’s point, which has complete intellectual coherence. The fact is that they could go in that direction, but other European Prime Ministers, Finance Ministers and, indeed, the people in those countries will say that they do not want to leave the euro and that they want to make the euro work. We are affected by what is happening in the eurozone, which is why I keep saying that it is in our interests that they get their act together and make their currency work. You can argue for the opposite, but the fact is that that is what most European countries want and that is what I think they will try to achieve.
I do not know whether the Prime Minister remembers 16 September 1992—golden Wednesday—when the United Kingdom came out of the exchange rate mechanism, which was the start of our economic recovery. Why are the political elite of Europe denying Greece and other euro countries the same mechanism to improve their currency: withdrawal from the euro so they can re-establish their national currency?
I learned a very important lesson from our experience in the exchange rate mechanism: never fix interest rates in a way like that because you may need a different interest rate in your economy from that applying elsewhere. That is why I am so completely opposed to Britain ever joining the euro. I could not be clearer about that—unlike the Labour party, which spent 13 years planning and preparing for our eventual admission to the euro. We must allow other countries to make their own choices, and the choice of people in Greece—it is their business—seems to be that they want to stay in the euro. That is not the choice I would necessarily make—or that Mrs Bone, or even Mr Bone, would necessarily make—but that is the choice they seem to want to make and we have to support them in it.
Another report came out today from the Institute for Public Policy Research showing that 32,000 jobs in the public sector were lost in the north-east last year while the number of private sector jobs also went down, and the number of public sector jobs in London and the south-east went up. Why should the Europeans trust the action plan from the Prime Minister when his inaction plan in this country is destroying the regions of this country?
Of course there has to be a rebalancing of public sector and private sector jobs in our economy, and of course there are difficult circumstances faced by different parts of the country, but in the north-east we have seen the expansion of the Nissan plant, and we have the new Hitachi train plant going into the north-east as well. What we need to do as a country is to become more competitive—to start manufacturing and making things again, which will benefit all the regions of our country.
Would not France, among other countries, do rather more to help developing countries if it met its own UN target for international development, as we are doing, rather than exhorting those of us who are meeting our UN targets to sign up to a financial transactions tax?
My hon. Friend puts his finger on it. Some other countries are using the cover of a financial transactions tax to get off the fact that they have not met their targets for overseas development assistance. In all the figures that we bandy around about the financial transactions tax, it is worth bearing in mind the fact that around 80% of it would be raised from businesses in the United Kingdom. I am sometimes tempted to ask the French whether they would like a cheese tax.
Seeing that the European Central Bank has been told to sit on its hands, obviously by the Germans, is it not time that the Prime Minister reminded the Germans that it was the Marshall plan that saved their country after the war?
The European Central Bank is independent; no one is able to tell it what to do. There is a very strong case for saying that the eurozone institutions, including the ECB, need to do more to stand behind their currency and their currency zone, but we have to understand why the Germans feel as strongly as they do, and it is partly based on their history and what they feel went wrong in the 1920s and ’30s. None the less, I think that the argument that the ECB and the eurozone institutions need to do more is right.
Does my right hon. Friend agree that if we were to listen to Labour and ease our deficit reduction strategy, our interest rates would soar towards Italian levels and away from German levels, and will he explain to the British taxpayer what that would be likely to cost in increased interest payments?
My hon. Friend makes an important point. It is not just a question of the extra interest payments the Government would have to pay, although that would be pretty crippling for the taxpayer; it is also the fact that those higher interest rates would affect business investment and the mortgages that people pay. We could see a really bad effect on households and business as well as on the Government finances.
The point about the global plan for growth and jobs—and the reason it is worth while, and the whole of the G20 process is worth while—is that different countries are committing to doing different things at the same time to maximise global growth. It is quite clear that Britain needs to get on top of its debts and its deficit and export more; it is also clear that China needs to grow its consumption, grow its middle class, and import more. If we all do these things at the same time, we will find that we can maximise global growth and increase employment levels too.
I entirely agree with my right hon. Friend’s statement that the UK should not contribute to any further eurozone bail-out fund, but how can UK taxpayers be certain that our contributions to the IMF will not be used for such purposes when the UK has only 4.29% of the vote on the IMF governing body?
The IMF has extremely tough and clear rules about when it can and when it cannot lend money. That is why it cannot put, and nor would we support its putting, money into a euro bail-out fund or into a special purpose vehicle. That is not the role of the IMF—that must be the role of the European financial stability facility—but what the IMF can do is lend money and help countries that are in distress. As I said, no country has ever lost money on lending it to the IMF, because it is the senior creditor in all these arrangements.
The Prime Minister keeps talking about rebalancing the economy. We have seen a 20% to 25% reduction in the value of the pound, which should have made us competitive, yet the private sector is not taking up the slack because there is no confidence out there. Do we not need another plan to build confidence?
The worst thing we could do for confidence would be to abandon the plans to deal with our debt and our deficit, because we can see what is happening in countries such as Italy that do not have a proper plan for getting on top of their debts: they have higher interest rates and all the problems that they bring. The hon. Gentleman is right that we have had a depreciation in our currency that should lead us to be more competitive. If one looks at the export figures from Britain to countries such as India and China, one sees that there is a good increase in our exports.
None of our constituents wants to pay taxes to bail out the eurozone; that is not what our taxes should go towards. When we came to office we were part of the European financial stabilisation mechanism—the EFSM. I have got us out of that from 2013, but between now and then we are still at risk because of a very bad decision to which the previous Government agreed.
We must put in place contingency plans for any of these countries leaving the eurozone. The hon. Gentleman asks what those plans are. For obvious reasons, if we start to describe exactly what we might have to do, we could set off all sorts of chain reactions. If he wants to discuss privately with a Treasury Minister the elements of any plan, he is at liberty to do so.
I believe my hon. Friend is right that there is nothing in the treaties that allows a eurozone member to leave the eurozone yet stay in the European Union. My sense is that were that to happen, some allowance would be made. He is right to say that that would involve a treaty change at some stage to ensure that it was legal.
The Prime Minister has suggested that he is in favour of a global financial transaction tax. That will happen on a global basis only if people take the lead. What my constituents wanted to know when they contacted me was what steps the Prime Minister took at the Cannes summit to promote that tax.
I spoke on the financial transaction tax at the session where it was discussed and said that we supported it at a global level. I made a few of the points that I have made in the House today because sitting around the table were the representatives of European countries and institutions, including the European Commission, that have spent this money several times over. When we talk about the European budget, such a tax is given as the great way to raise money for that; when we talk about development, it is given as the way that we will pay for development; when we talk about climate change, it suddenly becomes the magic way to meet all our climate change commitments. Frankly, I do not think that we should allow other European countries to get away with that.
It is highly likely that China’s condition for buying into eurozone debt will be the lifting of the EU-wide arms embargo, which would be directly against Britain’s national interests given its defence industry base and the tens of thousands of jobs that are dependent on it. Given that that would require a unanimous decision by all EU member states, will the Prime Minister confirm that the UK Government would veto such a request?
We do not support the lifting of the arms embargo. In the discussions at the G20, there was not some sort of shopping list from the Chinese—a rather unfair point that some have made. Clearly, it is in China’s interests, just as it is in our interests, that the eurozone crisis is dealt with. China has huge export markets in Europe and it owns huge amounts of European debt. That is why China, like Britain, subscribes to the IMF and will support an increase in its resources.
The Prime Minister has said that the action plan for growth and jobs includes many of the things that Britain is already doing. I can assume only that it is a very thin document. How many minutes were spent talking about job creation at the summit?
A great deal of the first day was spent talking about the condition of the world economy, and particularly the fact that economies in the developed world are obviously seeing very low rates of growth. I also had a meeting, I am pleased to report, with the leader of the TUC and other international trade unionists, to discuss specifically growth and jobs, and how we can try to prevent youth unemployment from rising in western European countries. I do not know whether all my predecessors always found time for such meetings at the G20, but I was delighted to have one.
I would not underestimate the huge pressure that the eurozone leaders are under to come up with a solution to the crisis in the eurozone. Clearly some of them have huge ideological difficulties with seeing a greater role for eurozone institutions. I do not think it is completely out of the question that other countries—China, or Saudi Arabia—might at some stage want to contribute to a eurozone fund, not least because the risk would be taken with the eurozone money and not with the Chinese or other money. In the end, however, there is no substitute for the eurozone acting first to sort out its difficulties.
Will the Prime Minister reassure the House that he will not take the advice of Opposition Members and increase the deficit to boost growth artificially? The consequent rise in interest rates and inflation would cause enormous damage to small businesses and families right across this country.
My hon. Friend is absolutely right. If we went to the G20 summit arguing for a £20 billion increase in borrowing this year, or the increase that Labour supports of £87 billion over the Parliament, at the same time as saying that we were going to get out of the IMF, I think the G20 would conclude that we were completely barking.
We have argued very consistently that part of any solution has to be a very decisive writing down of Greek debt, because it obviously cannot afford the level of debt that it currently has. That is the plan that it is being offered. Some would argue that even that is not enough, and that is my hon. Friend’s position, but our view has always been that unless the debts are written down significantly, there will not be a proper solution.
I am grateful to my hon. Friend. As I said, it is difficult to say more about it in the House, but I will discuss with Treasury Ministers whether we can say a little bit more. If Members have contributions that they want to make or concerns about elements of any contingency plan, which would have to be very wide ranging and cover all sorts of different eventualities, they should talk to Treasury Ministers.
Does the Prime Minister have an estimate of the liability that the UK would have incurred had we not excluded ourselves from the European financial stability mechanism bail-out fund that the Labour Government supported?
One thing that we have managed to keep out of is the European element of the Greek bail-out. That has had two iterations, and we were not involved in the first or the second. The specific idea of using the EFSM to support Greece was batted away by Britain.
One of the key issues about the eurozone is the need to recapitalise a number of European banks, especially those that are quite weak. What comments can the Prime Minister make about the relative strength of UK banks, and will he say that the UK taxpayer will not have to stump up any more cash to recapitalise our banks?
On the current plan for the recapitalisation of European banks, British banks would not require any additional capital because they are quite well capitalised already. There is a concern that needs to be expressed that as the Europeans move to recapitalise their banks, it is quite important that they do not do that purely by shrinking bank balance sheets, and that they encourage banks to find fresh sources of capital so that lending does not decrease in the European Union.
Are we not in danger of ignoring the political reality of the current situation, which is that saving the euro at almost any cost is in the long-term interests of Germany, but not necessarily that of the taxpayers of the United Kingdom? That being so, surely the ECB and not the IMF must be the lender of last resort.
I certainly agree with my hon. Friend’s last point. The point about the future of the euro is that we should take a very hard-headed, national-interest view. All the evidence is that a disorderly break-up of the euro would have very bad effects on all the economies within Europe, and bad effects on Britain. One can make longer-term arguments about what it might mean and how things might change but, in the short-term, there is no doubt that when we are trying to secure growth and jobs in this country a disorderly break-up of the eurozone would not be good for Britain.
We all have to be careful not to speculate on other countries, but the requirement of those who are lending money to Italy is a clear and consistent plan for Italy getting on top of its debts and deficit. When they see that, interest rates will come back down again. However, that is a lesson to any country that if they do not have credibility in the markets, their interest rates can go up quite quickly.
My hon. Friend makes a very good point. One point that Bill Gates made to me is that if other European countries introduce stamp duty on shares, they might find that they can get to the 0.7% of GDP that they are meant to be giving in overseas development assistance without having a financial transactions tax. If they care about overseas development, as this Government do, that might be quite a good answer.