Skip to main content

Eurozone Crisis

Volume 535: debated on Tuesday 15 November 2011

Motion made, and Question proposed, That the sitting be now adjourned.—(Greg Hands.)

Good morning to you, Mr Caton. In raising concerns about the UK’s liability to the eurozone bail-out via its contributions to the International Monetary Fund, I will ask various questions of the Minister. I will question the assumption that we always get our money back, whether the IMF’s policy will work and why the IMF should be getting involved at all.

That we are talking about large sums of money cannot be denied. Our liability through the European financial stabilisation mechanism totals some £6.5 billion. Our liability through the bilateral loan to Ireland exceeds £3 billion. Despite Government assurances to the contrary, it does not stop there. Our IMF liability to the Greek, Portuguese and Irish bail-out packages announced before May 2011 totals some £3.5 billion, and that does not include the latest Greek bail-out. Adding in our additional contributions, which are almost doubling—from some £10 billion to nearly £20 billion—it is obvious to all that we are soon talking some big figures. I do not think the Minister can deny—I shall welcome his intervention if he thinks otherwise—that some of the additional IMF money will be routed through to the eurozone crisis. Therefore, the Government’s claim that our liability stops with the EFSM and our bilateral loan to Ireland simply does not wash.

Let me be clear: I support the IMF’s work. IMF programmes can and do work under certain conditions. However, there are real risks to those IMF contributions routed through to the eurozone crisis.

The Government take great comfort from the fact that no country that has lent money to the IMF has ever lost that money. However, this recession is very different. Having been a fund manager in the City of London, running pension funds, charity money and funds for private clients, I know that it is always dangerous to say, “This time it is different,” but economic history makes that clear. Recessions since the great depression have always been de-stocking events, where the problem has been a fall in demand. In response to that, the Keynesian approach of stimulating the economy through additional demand—if necessary, by borrowing—has by and large done the trick. This recession, however, is a deleveraging recession, which has been built on excessive debt. Governments and consumers have taken on too much debt. Demand is not the issue; excessive debt is. The only remedies for this recession are to pare down the debt and attain greater growth through increased competitiveness.

I worry that the Government are underestimating the scale of the debt. There is £300 billion-worth of Italian debt to be rolled over in the coming 12 to 18 months. The eurozone went to the Chinese, who have massive reserves, but the Chinese did not want to know. The fact that the IMF wants an additional £10 billion from us clearly suggests that it does not have our original £10 billion. The Government would be foolish to ignore the omens. Does the Minister accept that there is at least some risk that the UK could lose some of the money routed through the IMF to the eurozone crisis? Again, he is welcome to intervene if he so wishes.

My hon. Friend refers to £10 billion and another £10 billion. I understand that when the issue was discussed in the Joint Committee on Statutory Instruments, the Minister said that, broadly speaking, our liability to the IMF would be £20 billion. However, I understand that another funding source exists that may mean that our liability is already £40 billion. Can my hon. Friend enlighten us?

My hon. Friend is right to raise that issue. There is an additional liability that we know relatively little about, because the Government have not come to the House to explain it. I hope the Minister will take the opportunity in this debate to address that concern. Is that true? What is the extent of the liability? How would it be called upon in the event of certain contingencies?

My hon. Friend referred to the idea that we have never—hitherto, at least—lost money to the IMF. Does he recognise that there is potentially a huge opportunity cost in lending money, often at low interest rates, to the IMF? As he will know, Parliament was told at the time that the bilateral deal struck with Ireland had tremendously advantageous interest rates. There has been a haircut on that interest rate across Europe, which could well happen to any future IMF contributions that we make.

My hon. Friend is absolutely right. There is a real danger that we underestimate the extent of the debt and the defaults that could happen. One is not joining the bandwagon of warning signals. The debt that has to be rolled over is quite clear for all to see, but I do not think the Government are acknowledging that. Simply to fall complacently back on the fact that no money ever loaned to the IMF has been lost is to miss the point completely.

I congratulate the hon. Gentleman on securing the debate. He mentioned a number of times the bilateral loan, which is of significant interest to my colleagues and me. He may be interested to know that last December, I wrote to the Chancellor to suggest that Her Majesty’s Government should hold the deeds of all properties in the United Kingdom that are in the possession of the National Asset Management Agency, the Irish state bank, so that it cannot disproportionately influence our market by the unilateral sale of those properties. Does the hon. Gentleman agree that that is one way of protecting ourselves and our own local market against NAMA?

That is certainly one option that should be explored more thoroughly. I referred to the Irish loans because the Government line to date has been that our liability to the eurozone crisis stops at the bilateral loan to Ireland and at our existing £6.5 billion contingency liabilities to the EFSM. That is simply untrue, given the additional contributions through the IMF.

Will additional IMF funding work? That will simply reinforce existing eurozone policy, which is itself fundamentally flawed. The existing policy simply does not address the core causes of the crisis, which are a lack of competitiveness and Governments spending too much. Debt is the problem, as I have said, not demand. We have had 14 or perhaps even 15 gatherings, conferences and summits to save the euro, but each has failed to address the core reason for the problem, which is a fundamental lack of competitiveness. Where are the swathes of cuts to regulation? Where is the introduction of measures to improve competitiveness? They simply have not been there. All that has happened, and all the concern there has been, is to put together more debt to solve an existing debt crisis.

The Government say that no one has ever lost money by lending to the IMF. Can my hon. Friend tell me whether the IMF previously lent money to make a debt crisis worse, as it is now doing? Previous IMF bail-outs involved a debt default or restructuring and devaluation, not more bail-outs and borrowing. Surely, putting the IMF in charge in that way is making things worse. Putting Christine Lagarde at the helm is a bit like putting a debtor in charge of a bank.

My hon. Friend nearly stole one of the lines I was about to come out with. Fundamentally, I agree with him. The problem is caused by excessive debt: that is what makes this recession different from previous ones, yet the solution the eurozone leaders have come up with is to pile on more debt. That is not the solution. All it is doing is reinforcing failure and failed policies.

There are further reasons why this policy will not work. I cannot think of a monetary union in the economic history of this planet that has succeeded without fiscal union also being in place. Again, I call on the Minister to intervene if he can correct me. To pursue monetary union without fiscal union is a doomed policy. Can the Minister come up with one example of successful monetary union in a country where fiscal union has not also been present? As I say, I would welcome his intervention, but I doubt that he will have such an example.

As my hon. Friend the Member for Clacton (Mr Carswell) has suggested, another reason why this policy will fail is that it fundamentally ignores the importance of devaluation to recovering economies. Usually, there are three elements in an IMF package: reduced spending, increased revenue and the ability to allow the currency to devalue. That last bit is important because a currency that devalues helps to take the strain off the economy. If an economy is deemed to be, say, 25% uncompetitive compared with its neighbours, allowing its currency to depreciate to about the same extent will go a long way towards taking the strain. If we cut off that option, that 25% gain in competitiveness can really be brought about only by cuts to public services, salaries and pension funds. That is simply not an option, and for that reason it makes those austerity packages so much worse.

To my knowledge, the IMF has never lent to a country or put in place a programme in a country that cannot devalue, which is why the Government line that only three of the 53 IMF packages go to the eurozone is disingenuous. Can the Minister name one country, one package in those 50, where devaluation is not an option? That is the fundamental difference. In the three packages in the eurozone, devaluation is off the table, which will make the austerity packages worse.

Having asked the Minister several questions, I was hoping that a number of notes would have been passed to him so that we could get some answers. I am sure he has pre-empted my questions and has the answers in his brief. Again, I would welcome him intervening to name one of those packages outside the eurozone in which devaluation is not an option. They do not exist. Devaluation is terribly important when it comes to an IMF package, but we are not allowing that option in the eurozone. That is another reason why these IMF packages will fail.

When the IMF intervened in our economy in 1976, when Denis Healey was fighting to save the pound, that intervention arrested the devaluation of the pound.

I agree to a certain extent, but my hon. Friend cannot deny that we had the ability to devalue. The currency markets could take the strain and, to a certain extent, they did. If we look at the strength of the pound since the second world war, we see that it has been a sorry tale of devaluation. Had that devaluation not taken place and had we been locked into a system that did not allow devaluation, my goodness me, the austerity packages introduced to compensate for that lack of competitiveness would have been very severe indeed.

I share my hon. Friend’s scepticism about the role of the IMF in the treaty that establishes the European stability mechanism. Does he recognise that that treaty is littered with references to the IMF, even to the extent of including a provision that says that no application can be made for a loan unless a similar application has been made to the IMF first?

My hon. Friend is absolutely right. The IMF is an integral part of the rescue package for the eurozone, but that is something that the Government are, at least publicly, not willing to acknowledge, which is very wrong indeed.

I question why the IMF is getting involved in these bail-outs. The eurozone is a currency union. If a state within the United States got into trouble, the IMF would not be expected to ride to the rescue. The same should be true of the eurozone. I contend that Greece is not economically sovereign: it has no central bank, it cannot set interest rates, it has no currency, and it cannot devalue. I would go so far as to question whether Greece is even politically sovereign. At least in the United States, the people can elect the governor of individual states. That is not happening in Greece and Italy. In some cases, we do not even have a Government.

My hon. Friend refers to the possibility of an American state finding itself in financial difficulties. Of course that has already happened in California. Can he confirm that, in those circumstances, the IMF was not involved and was not able to contribute?

That is absolutely right. My hon. Friend reinforces my point. The US is a currency union and the IMF is not expected to ride to the rescue there, yet it is expected to ride to the rescue of countries in the eurozone, which is also a currency union. That is completely wrong.

Let me ask my hon. Friend about the wider context. We are dealing with the financial aspects here, but I have always had a greater interest in the constitutional aspects. It seems that the euro is destroying democracy as we know it. Should we not consider that issue, especially as we are seeing the end of democracy in Greece and Italy? Europe has always been my concern, which is why I opposed the whole thing in 1975. We are now seeing the creation of a single country in Europe, to which the British people have not signed up, and that will eventually lead to trouble.

My hon. Friend is absolutely right. If he needs confirmation, I suggest that he look at the front page of City A.M., where he will see what Angela Merkel has said about political union. There is a political deficit in the eurozone at the moment, which is why Governments are being appointed and not elected in Greece and Italy. That is a consequence of the fact that the eurozone and the EU are hellbent on political union at the cost of democracy and getting the people’s consent.

I congratulate my hon. Friend on a formidably cogent speech. Sadly, I will not be here to hear the Minister’s attempt to answer it. The democratic deficit that I am worried about is the one in this country. We are having this debate in Westminster Hall. Whatever its outcome, it will not change what happens in the IMF. Is there any way that Parliament can have a say on British taxpayers’ money being used in pursuit of an end that is against their interests?

My right hon. Friend makes a good point. By raising such issues in Parliament and in collaboration with other like-minded individuals, we can hope that we can force the Government to think again and to look at the various mechanisms at our disposal in the House. If we do not raise these points in our Chambers, the Government will not answer the questions that need to be put to them. My right hon. Friend is right; we will not change anything today. The hope is that together we can force the Government to think again.

Let me go back to why the IMF is getting involved at all. What makes the situation even worse is that the eurozone has resources that could do much more to help. For example, the Bundesbank has reserves of £180 billion, £130 billion of which is in gold, and gold is going up in price. That is in stark contrast to our country and the action of the previous Government, who sold gold at near the bottom of the market.

I agree with the point made by my hon. Friend the Member for Clacton about why we supported Christine Lagarde, the former French Finance Minister, being put in charge of the IMF. It is like putting the debtor in charge of the debtors’ prison. Christine Lagarde has admitted on record that the bail-out arrangements broke the rules, but she said that that could be justified because we all had to rally round to save the euro, which itself is a political objective. That is complete nonsense and it does not augur well for the future, and the Government taking confidence in the fact that the IMF has signed off the packages does not augur well either. The IMF signed off the initial Greek package and look at what happened then: the situation went from bad to worse. I suggest that it will get worse still. Having some sort of blind confidence in the IMF signing off the packages is basically abdicating one’s responsibilities of Government to question what is going on. I do not see that detailed questioning happening at the moment.

I suggest that the Government’s line on this issue—their approach to the eurozone crisis—is symptomatic of their flawed approach generally to the euro. The Government seem to have fallen in behind the French and Germans in this cry that somehow we must save the euro. I suggest to the Minister that that is economic clap-trap. Binding divergent economies into a single currency without full fiscal union was, and remains, a massive mistake. Similar thinking warned us of the perils of exiting the exchange rate mechanism, yet look what happened then: almost to the day that we exited the ERM, our recovery started and it was a very strong recovery.

I suggest to the Minister that the sky will not fall in if the euro breaks up. We will still have, by and large, a free market, although I think that it could be improved, and we will still have consumers demanding goods. If anything, by not trying to save the euro, we could help to stimulate demand, because by trying to save the euro we are cutting off one of the key ways to improve competitiveness—devaluation. By cutting off that option, we are making the austerity packages worse; we have to add to the austerity packages because the countries in need do not have the option of devaluation.

Saving the euro is making matters worse, yet the Government are silent on this issue. They have shown no leadership. They have fallen behind the line that saving the euro is everything—it is not. I suggest that the Minister and the Government look at the experiences of Norway and Switzerland, which have their own currencies and free trade agreements with the EU. Those countries are doing very well. Saving the euro should not be the ultimate goal, because it is making the austerity packages worse.

My hon. Friend is making a powerful and convincing speech, but is the situation not even worse than he suggests, in that the Government are effectively adopting a de facto policy of support for a tighter fiscal union, which in the long term will inevitably militate against this country’s strategic political and economic interests as a sovereign state?

My hon. Friend makes a good point. By joining in the chorus that we must save the euro, we are implicitly supporting fiscal union within the eurozone, which is the wrong approach to take, certainly for this country’s interests. But, no doubt, the Minister will be able to clarify the Government’s position on that issue.

The same flawed approach by the Government has denied the people of this country a referendum on the EU and our future relationship with it, while allowing massive budget transfers to Brussels. Our budget increase totals about £21 billion or £22 billion. It will increase from £19 billion for the last seven years to about £41 billion in the next seven years. What could we get for that additional £21 billion or £22 billion? We could get 100,000 police officers on the streets for each of those seven years, 100,000 nurses in our hospitals or 100,000 teachers in our schools. How could we stimulate growth with that money? We could cut basic rate income tax by 1p in the pound for each of the seven years. We could cut small business corporation tax by 6p in the pound. My goodness me—would that not be a concrete measure to stimulate growth and encourage competitiveness in this country?

I am afraid that the Government’s thinking on this issue is intellectually incoherent, economically flawed and, perhaps worst of all, flies in the face of what the majority of people in this country want. What we want is leadership—strong leadership. We hear noises such as, “Oh, regulation from the EU hurts growth.” There is nothing new in that; saying it is just making noise for the sake of making noise. We have known that about EU regulation for years. What we want is strong leadership that repatriates powers to this country, stops the salami-slicing of our political sovereignty, encourages the establishment of a genuine free market in Europe and guards against our liabilities to the eurozone crisis. But I do not see that strong leadership in front of me today, which worries me and a number of my colleagues and right hon. and hon. Friends greatly. Meanwhile, we stumble on.

I suggest to the Minister that this country will wake up about this issue one day and that we will renegotiate with the EU. My hope is that we will renegotiate a free trade arrangement, similar to the arrangements that Norway and Switzerland have, and that we have a constructive businesslike arrangement with the EU, without sacrificing political sovereignty and without going down the road of political union. My concern is about the damage that will be caused to this country between now and then and the cost that we and our children will have to bear.

I hope that the Minister, as he has refused my invitation to intervene on the questions that I have put to him, will come up with some answers when he winds up this debate. I hope that he answers the questions that I have put, because they are the questions that people in this country are asking.

Order. I want to start the winding-up speeches at 10.40 am. At least seven hon. Members are indicating that they would like to speak, so greater brevity of speeches will mean a greater number of them.

I am grateful to you, Mr Caton, for allowing me to speak. I commend the hon. Member for Basildon and Billericay (Mr Baron) for bringing this matter to the House today and giving us all a chance to express ourselves in the way that our constituents have expressed themselves to us.

I want to make it clear from the outset where my opinion lies—we need to look at the signs in front of us and then take action. Iceland was not prepared to pay back a bail-out; the Greeks were not willing, or perhaps they were not able, to make the cuts necessary to meet their payments; and now we are looking towards Italy and all the chaos that seems to be enveloping that country. For too long, we have watched other countries prosper with bail-out funding while we cut funding to schools, hospitals and infrastructure to remain solvent and to claw our way back to a sound financial footing, which are the very things that the hon. Gentleman discussed.

For too long, we have paid into the EU while watching our farmers and fishermen flounder under the weight of EU dictates. We watched other nations flaunt the rules even as we were fined £60 million in Northern Ireland for mistakes in filling in some forms. Just last week in Portavogie, which is in my constituency, I had an opportunity to speak to some fishermen. They told me that they are weighed down by bureaucracy, such as new rules on mesh sizes for nets and types of net by red tape and by monitoring, which they have to pay for themselves because the cost of policing fishing falls on the heads of fishermen.

I believe that the people want out. They see the crisis and that the house of cards is no longer simply swaying but precariously quivering with the wind of change blowing through Europe. We stood in this House last month and advocated allowing the people to have a referendum on Europe. We were denied the opportunity to have a referendum by the strong whip of the three major parties. At least my party, the Democratic Unionist party, stood strong and united in our call for a referendum. We feel that that is what the people want us to do. People must be given the opportunity to have their voices heard.

My mother had a wee statement; she had lots of wee statements, as mums always do. She said, “Don’t throw good money after bad,” but that is what is happening in Europe. How long will it continue? When will it end? Is this not the chance to leave Europe, or to change it so that it no longer resembles the red-tape-loving, common-sense-ignoring, self-serving, life-sucking drain of money that it has been for so long? Angela Merkel, the German Chancellor, has said that she wants substantial treaty change to strengthen it and to give the European Commission the chance to impose fiscal discipline on excessively indebted states in the single currency area. I am concerned that other European countries have a clear policy—a strategy—about what they want, and that they want us to be a subservient part of it. We want, and need, more. We need to be free to fish our seas and farm our lands responsibly, as we have done in the past, and we need not to be bound by restrictions placed upon us by those who are self-serving in Europe. As we struggle in this financial mire, China sits back and laughs. It is time to take control.

I have spoken before on the IMF, and I say again that the money is not for bailing out the euro, because the eurozone countries should and must bear the brunt. I stated in the House earlier this year:

“It is clear that the European financial stabilisation mechanism is not fit for purpose…On 9 May 2010, the European financial stability facility was created, and it is a special purpose vehicle agreed by 16 members of the eurozone and aimed at preserving financial stability in Europe by providing financial assistance to eurozone states in economic difficulty.”

That is very commendable, but perhaps unworkable. Furthermore:

“Thus far, we are not at all involved, but no to the euro meant no to the EFSF. The tricky part came with the notion that the facility may be combined with loans of up to €60 billion from the European financial stabilisation mechanism, which is again reliant on funds raised by the European Commission using the EU budget as collateral, and up to €250 billion from the IMF, all to secure a safety net of €750 billion.

If there is no financial operation in activity, the EFSF would close down after three years, on 30 June 2013. If there is a financial operation in activity—which of course there is—the facility would exist until its last obligation had been fully repaid. There has indeed been activity, and a good deal of it involving the EFSM, despite the fact that it should not have been involved to the extent that it had an equal if not greater share of the bail-outs. The purpose of the European financial stabilisation mechanism is to provide an emergency funding programme that is reliant on funds raised on the financial markets and guaranteed by the European Commission using the European Union budget as collateral.”—[Official Report, 24 May 2011; Vol. 528, c. 813.]

In my opinion, that has not changed, and as we look at Greece and Italy and wait to hear of the next country to fail, it is clear that despite the Prime Minister’s claim that there is no risk to the taxpayer, there is a danger that the money will not be used for the good of the United Kingdom. That is a huge risk, and it cannot be allowed.

I sincerely urge the Minister to think clearly before any more money goes into the IMF. We have been hoodwinked before to our detriment and to the financial cost of everyone in this country, and it cannot happen again. Let us not forget that we are fighting to reduce the deficit here and that we must prioritise. I commend the Prime Minister on his idea of the big society. Regardless of whether it is workable, I support the thrust of it, but it will be difficult for it ever to happen and for the benefits to be seen in the UK, never mind Europe-wide. As I stand here today representing my constituents, I state very clearly that we should not put any more of our funds into the IMF without first being certain of where the money will go, to the penny. We cannot afford to do otherwise, because the people do not want us to, and it is their money that the Government are toying with. For the first time since joining the EU, it is time to work things out to our advantage. We need to take that chance, and we need to take it now.

I support the thrust of what other hon. Members have said today, and I hope that the Minister will respond positively to our concerns as MPs and elected representatives. The concerns are genuine. The people I represent, who have put me here, are very clear: they want us out of Europe, and they want us out now.

I thank my hon. Friend the Member for Basildon and Billericay (Mr Baron)—my very old parliamentary friend—for securing this debate. He talks with immense sense and, as a man who had a job outside politics before entering this place, immense experience. After 20 years in the financial markets, I suspect he has forgotten more about finance than many people who talk on these matters on all our behalves know.

Conventional wisdom dictates that high noon for the euro is imminent. The assumption is that the single currency will collapse or that the eurozone will be forced into a headlong rush towards full fiscal union. Nevertheless, despite all the euphoria of the past week about Italy, I suspect that we shall experience many more months of tottering along from market crisis to emergency meeting, to fully fledged conference and half-hearted bail-outs—the sort of disaster to which my hon. Friend has referred. Indeed, if—it is a very big “if” and no one seems to be focusing on it at governmental level—the global bond market remains relatively stable, the cheap price of Government debt provides little incentive to create a viable long-term structure for our ailing continent’s economies. There is a massive bubble in the bond market that no one is really talking about. The Chancellor prides himself on Britain being a safe haven; America, with its $13 trillion debt, is an even safer haven with rather lower interest rates, as is Germany. It is absolute madness when we are receiving 2.2% for getting our debt away and have inflation of 5.6%, and I am afraid that the bubble will burst at some point with, I suspect, disastrous effects.

Many purists will rightly bemoan that politics is being allowed to outweigh the economic realities, and that cannot go on for ever. What is so dangerous about the utter lack of leadership and vision among Europe’s leading politicians is that the longer this crisis continues, the more private sector confidence drains away and global markets begin to discount the entirety of Europe. More crucial still is that the two distinct problems that face many struggling European economies, solvency and liquidity, are becoming conflated in the minds of markets. The Greek issue is simply one of solvency, or rather insolvency. Greece must be allowed to default, from within the eurozone, I suspect. I support its creditors, who are predominantly EU banks, taking a substantial haircut. They lent the money at attractive interest rates, implicitly recognising the risks, and they must now take the consequences.

My hon. Friend talks about allowing Greece to default within the eurozone. Surely that is the worst of all possible worlds. Surely the way to handle the problem is not just to default but to decouple and set Greece free. Default within the eurozone is the worst possible option.

The only difficulty is how on earth it would ever borrow money again. Greece has been living in Alice in Wonderland economics for the past 20 years. We need to look at what happened in Argentina. That economy has struggled massively for the past decade, because it has not been able to borrow money in the international markets.

Does my hon. Friend not agree that today Argentina has a better bond rating than many eurozone countries and that that shows the way?

I suspect that that says more about eurozone countries than about the fundamental health of the Argentinean economy, but if my hon. Friend will excuse me, I will continue.

With the failure of European leaders and Finance Ministers truly to grasp the nettle, the liquidity problems faced by Portugal, Ireland, Spain and Italy are becoming ever more deep-seated. It is very difficult for Angela Merkel in Germany—as someone who has German blood running through his veins, I accept that. I appreciate that her domestic political position appears ever more precarious, because the EU’s economic powerhouse should have ceded control of the deepening crisis to the European Central Bank. The ECB’s mandate could, and perhaps should, be to provide market intervention to restore and maintain confidence on behalf of all solvent eurozone economies, but in her actions to date, Mrs Merkel has indicated that the politics are just too difficult for her nation, which remembers the days of hyperinflation during the early part of the Weimar Republic. Furthermore, all this requires, as ever within the EU, bypassing democratic safeguards, and it potentially involves unfathomably vast quantities of central bank support, with potentially hazardous medium-term economic consequences.

I hope that the hon. Gentleman will excuse me; I know that others want to speak.

The twin lessons of the economic depression in the 1930s are that avoiding catastrophe requires swift action and that once a process is under way we should not worry unduly about overkill. It is better to pump too much liquidity into the system, rather than inadequate amounts. A financial system in free fall requires active central bank intervention, however irrational the collapse of market confidence. Nevertheless, in the absence of a central bank for the 17-nation eurozone that has real political clout or, more important still, sufficient funds to provide comprehensive cover in a liquidity crisis, it is regrettable that the UK is now expected to stand ready to bolster the IMF. The IMF seems to be the only institution that can bail out countries that are close to default—Italy and Spain, for example. My hon. Friend the Member for Basildon and Billericay is absolutely right that there is disingenuous thinking and talking within the eurozone. The reality is that if Italy or Spain has a problem, the European Central Bank and the European financial stability facility cannot address it. Clearly, such a problem must be addressed by the IMF.

Without stable financial markets, there is little hope of the sustained growth essential to economic recovery. The UK economy is a global leader in the financial services sector, but it is especially prone as a consequence to the adverse impact of uncertainty on worldwide financial markets. No UK taxpayer will stand by and watch with any sense of satisfaction as unimaginably large sums of money or guarantees are given to bail out the banking system.

As has been pointed out, our Prime Minister and the Chancellor have repeatedly vowed that there will be no further bail-outs of the eurozone. However, in the event of a collapse in market confidence for Italy or Spain, the UK, as a founding member of the IMF, will almost certainly be expected to increase both its absolute funding and its guarantee facilities to the fund, which is an extremely unpalatable prospect. However, I also accept that a UK failure to act would not only have immediate, serious consequences for the global financial services sector, but amount to an abdication of our responsibilities as a mercantile nation in the international field of trade and commerce.

As MP for the City of London, I reluctantly accept that I have no choice but broadly to support the UK Government’s proposal to underwrite further funds to the IMF. Nevertheless, I regard that as a matter that must be addressed not by the Executive alone but also here in Parliament. If the UK taxpayer is to be further exposed to IMF loans and guarantees, that must happen only after a statement from the Prime Minister outlining why such a course of action is in the national interest, after a full parliamentary debate and as the consequence of an affirmative vote in Parliament. In my view, nothing less will do.

I know that many other Members want to speak. There is much more that I would like to say, but I will touch on a point that my hon. Friend the Member for Basildon and Billericay made regarding the wisdom behind the UK Government’s enthusiastic promotion of a headlong move towards fiscal union in the eurozone. I say to the Minister that we should be extremely careful what we wish for. Such a development would embolden the eurozone, even in its apparent weakness, to embark on a rapid and radical political power grab throughout the EU. Alarm bells would ring in the City of London. It would be very bad news for this country, and we should not stand by and let it happen without ensuring that our national interests are properly served.

It is a pleasure to participate in this debate. I congratulate my hon. Friend the Member for Basildon and Billericay (Mr Baron) on his good sense in calling for it. It is fantastically well attended, and it is a pity that it is not longer.

At business questions on Thursday, I raised with the Leader of the House the issue of the loan to Ireland. He said that he would tell the Financial Secretary to the Treasury of my interest in the subject, and that my hon. Friend would come to this debate with the answers to my questions. I hope that he has had due warning.

The loan to Ireland goes to the heart of the issue of trust, to which my hon. Friends have referred. The people in this country do not understand what is happening in their name. The Chancellor announced that we would give a £3 billion loan to Ireland. That is £50 a head for every member of the UK population. He announced that the rate of interest would be about 6%, in round figures, and that that would give the British taxpayer a healthy profit.

It then emerged in late July that the interest rate was likely to be lower, but had not yet been decided. The first tranche of the loan was paid to Ireland on 14 October. Even as we speak, the rate of interest on that loan has not been agreed. It is still being negotiated downwards. At the same time, the Irish bond rate has remained pretty constant, at more than 8%. Why are we negotiating the rate downwards? Why, indeed, are we lending all that money to Ireland when our own small businesses are crying out for money?

Is my hon. Friend aware that it is not just the interest rate that is uncertain but the priority of the loan? When addressing the Committee considering the Ireland and Portugal bail-outs and loans, the Financial Secretary stated that the loan to Ireland ranked broadly the same as those of the IMF and other international institutions, when actually it ranks below the IMF and the EFSF.

My hon. Friend makes a good point. We were told that the IMF would help Ireland and that we could help Ireland and influence its economic policy through the IMF. We were also told that we needed to give Ireland a £3 billion loan so that we could have even more influence, but I do not think that it is written in any agreement that to have yet more influence we need to reduce the interest below the rate agreed at the outset. The fact that the Irish have drawn down on the loan shows that they do not look a gift horse in the mouth. They realise that this is a great opportunity.

Let us consider the opportunities in Ireland. I got my assistant to research the interest rates available to small businesses in Ireland at the moment, so this information is from yesterday. Allied Irish Banks is offering loans of up to €100,000 to small businesses at a “competitive rate” of 4.4% variable. New and early-stage businesses under three years old can get that money. Now, I do not know what it is like for my hon. Friends, but in my constituency it is almost impossible for businesses to get a loan from the bank at a rate of 4.4%, if they can get one at all. We know that Allied Irish Banks is the beneficiary of a £3.5 billion bail-out. We are giving Ireland money that it is using to subsidise its banks, which in turn are subsidising its small businesses to compete unfavourably against ours.

I agree with the thrust of what the hon. Gentleman is saying. Does he agree that it is actually far worse? The Irish state bank, the National Asset Management Agency, holds £14 billion of property in this city, which it can dispose of any time it wants and put the money back into its own national coffers. Is it not time that we had a Select Committee inquiry into NAMA’s activities in the United Kingdom jurisdiction?

That sounds to me like a good point. People should start selling their assets. That is what families must do if they get into difficulties. We have to think about selling assets, which is what countries in debt should be doing.

Another example is the Bank of Ireland, which received €5.2 billion in the banking bail-out, and which is offering interest rates of 5.24%. More than half of all loan decisions are made on the spot and 87% of applications are approved. Would that we had similar arrangements in the United Kingdom. By comparison, HSBC was offering small business loans yesterday with a starting interest rate of 7.9%, which is obviously only for the most favoured customers.

Can the Government explain why we are reducing the rate of interest on the Irish loan? When the Bill went through the House, I voted against it, but it passed on the basis that we would make a significant profit on the interest. Now that the Irish are drawing down on the loan, surely we should know what the interest rate is. Is there any other organisation that can go to the bank and get a loan while the bank manager says, “Don’t worry, we’ll agree the interest rate later”? It seems reckless in the extreme.

My final point deals with the treaty establishing the European stability mechanism. Most people do not realise that the European stability mechanism is a new international financial institution that will have international immunity, and that it will be funded by the 17 members of the European Union. What will Ireland pay? Its subscription will be €11.145 billion, which is about £10 billion. Another way of putting it is that we are lending money to Ireland so that Ireland can, in turn, pay its subscription to the European stability mechanism. It is a farce.

Thank you, Mr Caton, for giving me the opportunity to contribute to what is probably the most important subject of debate that we will have during this Parliament. I congratulate my hon. Friend the Member for Basildon and Billericay (Mr Baron) on securing the debate and on presenting his arguments in a challenging and clear way. I look forward to the Minister’s response to the points he has raised.

Most of my hon. Friend’s speech dealt with the financial aspects of the issue. My view, however, is that it is not possible to consider the issue without also looking at the wider context. Indeed, I raised that point when I intervened on him. The key concern for me and many others is that the euro is destroying democracy as we know it in western Europe. That was my main reason for opposing Britain’s entry to the euro when it was established.

I am not sure how many of the hon. Members present were involved, like me, in the 1975 campaign to leave the European Economic Community, but I think that some of us might have been—I can see one or two. At the beginning, we thought there was a chance that we would be successful, but in the end the argument that I supported was well beaten. I was not trained as an economist—or as anything really; I left school when I was 16 to be a farmer—but my argument was that the public’s gut instinct in those days was that we were creating a huge bureaucracy whereby the ability to influence decisions in our country was to be transferred somewhere where we would not have influence. That was the fundamental gut instinct that drove us to the “no” side.

When the eurozone was being established, I became involved in the opposition to it, which was unusual, because I was the chairman of the Agriculture and Rural Development Committee in the National Assembly for Wales and the agricultural community was fairly supportive of Britain joining the euro. I remember being dismissed on platforms as an extremist, but I was simply not in favour of Britain joining the euro. My argument was exactly the same as that which many people are making today—to create a successful eurozone almost certainly means financial union. Nobody has hidden that. In 1975, the purpose of many people who were behind the establishment of the EEC was that we would eventually move to political union in Europe. That was the small print. Today, I hear people saying that they thought we were joining an economic community, but that is not what I or a lot of other people thought.

My hon. Friend is making an important point. Last night, the Prime Minister made a speech at the Guildhall in which he called for fundamental reform in the European Union, but it is not really just a question of fundamental reform in the EU, is it? What we have to have is a fundamental change in the relationship between the United Kingdom and the European Union, because it is a failed project. We have been enmeshed in it and it is increasingly causing damage to our own economy.

My hon. Friend has anticipated my next point, although I shall not use precisely the same language that he uses and has used for a long time—probably about 30 years. The Government’s policy, which I support, is that we should seek to repatriate powers from the European Union. That is easy to say, but for the Government to deliver that objective, the Prime Minister, Chancellor and Foreign Secretary have to have a way to do so. As Members of Parliament, we have a responsibility to think about exactly how we are going to do that. Which parts of European policy, precisely, do we wish to repatriate—whole blocks or just specific parts? The issue is hugely complex and a tremendous amount of work will have to be put in to enable it to be addressed.

We could speak for hours on the issue—I am sure that I could. A lot of Members want to speak. I have raised the points that I wanted to make and look forward to the Minister’s response.

I congratulate my hon. Friend the Member for Basildon and Billericay (Mr Baron) on securing this debate. Like him, I spent some years in the City of London, in various institutions. I want to address three things. First, I want to look at the theoretical construction of the euro as it was set up. My hon. Friend talked about the various eurozone summits and why they failed to find a solution. The reality, of course, is that a theoretically implausible project means that any eurozone solution will not be practical. I also want to talk about some of the reactions, and conditions the International Monetary Fund might want to attach to its bail-out, and our interest in it.

The single market was much welcomed in terms of the encouragement of free trade, which then drove some people to the aspiration for a single currency. It was clear that those countries that were going to join would lose the basic levers of economic policy, namely taxation—that is, fiscal policy—as well as interest rates, exchange rates, protectionism and, indeed, unemployment. It was also clear to any undergraduate, or even A-level economist, that the reality was that a fudge might be possible in good times, but not in a recession. The opponents of that view pointed to optimal currency area theory, which showed that the transaction costs would be lessened and that everything would, therefore, be fine. In practical terms, however, we have seen a theoretical misconstruct. The euro was a misconstruct because it failed to recognise exactly what that theory says: for optimal currency area theory to work, the economies have to be homogeneous in nature or flexible in their arrangements, so that they can move to homogeneity, or a currency union needs to be established alongside a fiscal union at the same time; otherwise, the overwhelming point is that whatever is set up in terms of a single currency will fail.

On the economies that were in the eurozone when it began—the wealth of Germany, the emergence of Ireland and the agrarian underdevelopment of Portugal— surely the appropriate description is diverse rather than homogeneous. Moreover, if we look at the policy formulation since the currency has been in existence, we see that there has been no flexibility that would allow movement to a homogeneous economy. Unless we recognise that the project is flawed in theory and do something about the theoretical basis, we will never find a practical solution. It is not surprising that we have had 15 eurozone summits that have provided no solution whatever.

The absurd reactions of Europe’s senior eurocrats are also of extreme concern. They are preventing any serious discussion of a resolution. The basic premise at the moment is, “The euro must be saved, the euro must be saved, the euro must be saved.” Only last week, President Barroso said yet again that the euro should be the norm for Europe. He even denied the UK’s permanent right to opt out. The President of the European Council, Mr Rompuy, also made an extraordinary remark over the weekend when he suggested that, if the eurozone’s integrity was not preserved, the functionality of the internal market could not be taken for granted. That is an absurd proposition. First, we need only look at the history of how the single market functioned before the euro came into being. Secondly, a single market does not need a single currency, but I will not bother to go into the theoretical construct for that.

Does my hon. Friend remember Madame Lagarde saying on 17 December 2010, when she was Finance Minister for France, that they broke all the rules because they wanted to save the euro at all costs? The rules have been broken, and that relates to the stability and growth pact and every single aspect of this.

My hon. Friend is right, and my hon. Friend the Member for Basildon and Billericay made exactly that point. I will not go on, but it seems simply ridiculous. If the eurocrats of Europe think that saving the euro is more important than working out the solution to the economic crisis, progress will be, at best, tortuous.

From a UK perspective we must be interested. The idea that we are not interested in what the IMF bail-out is—or, indeed, in the fact there is a eurozone crisis—is clearly wrong. The impact on the UK is extraordinary. We trade with the eurozone, and therefore have a significant interest. My hon. Friend the Member for Cities of London and Westminster (Mark Field) referred to the possibility of a default of Greek banks. It may or may not be true that we have little or no exposure to Greek banks—I think it is broadly true—but we have great exposure to banks that lend to Greece within the eurozone. That contraction of balance sheets will affect lending to small and medium-sized enterprises in the UK. Therefore, we must have that interest.

A basic and necessary precondition of what the IMF must say to the leaders of Europe is that they must recognise their wider international responsibilities. My hon. Friend also made the point about the Germans effectively wanting to control the eurozone, but not being prepared to accept the economic leadership that that implies by allowing the ECB to attempt to solve the liquidity crisis. We should extend money to the IMF, but I am realistic in accepting that, overall, that means the IMF would extend extra money to the eurozone. Any money that the IMF extends to the eurozone should be met with the precondition that the ECB becomes entirely independent and able to print money for the eurozone, or else it is bound to fail.

The IMF also needs, and almost certainly will accept, a necessary theoretical construction that provides a solution. The most likely solution is that we see a number of countries leave the eurozone—leave the euro—and some perhaps form a tighter unit. That being so, the IMF must stand up and say that it is prepared to fund the cost of dislocation for those leaving the eurozone, so that they have a chance to devalue, make the necessary adjustment to living standards and the necessary lowering of labour costs to allow a competitive solution.

Is my hon. Friend saying that he wants the IMF to fund the cost of eurozone members’ dislocation from the euro?

I am saying that I accept that the IMF will make a bail-out to the eurozone. On that basis, one of the best solutions for the eurozone is for a number of countries to be allowed to leave the euro. The IMF will therefore need to fund the cost of the dislocation of those countries leaving the euro to give them any hope, attendant with their devaluation, of an economically sustainable future.

I notice that I have gone on rather longer than my five and a half minutes. I had a number of other points, but thank you for the opportunity to speak this morning, Mr Caton.

I congratulate my hon. Friend the Member for Basildon and Billericay (Mr Baron) on securing this crucial debate. A large number of important matters have been raised, and it is a good opportunity to discuss them in this Chamber.

I take issue with the assumption that devaluation is a good thing. We have formally devalued twice since the second world war, and we are in a slowly-emerging devaluation. Post-departure from Bretton Woods, we effectively devalued over time. I see no evidence that any of those devaluations ever led to long-term improvements in productivity or competitiveness, so although the IMF, as it has in the past, has perhaps lent to countries that can and have devalued, it is not necessarily a good thing.

Does my hon. Friend accept that Argentina’s decision to decouple from the dollar and default on its debts helped it to achieve economic growth? Does he think that that was a good thing or a bad thing?

I am a great believer in all countries growing. Argentina is doing reasonably well, but that has more to do with the neighbouring countries that it trades with in Latin America than with decoupling from the dollar. However, I take the point that some countries will take the opportunity for a quick leap forward.

Does my hon. Friend agree that the IMF’s decision to allow the Ugandan shilling to devalue helped to stimulate growth in Uganda in the 1990s and that, without that devaluation, it would not have enjoyed 15 years of prosperity?

If my hon. Friend thinks that the devaluations of 1949 and 1967 in this country led to a period of improved productivity and competitiveness, I would dispute that. I want to pursue that argument, because that is what I think is important.

My hon. Friend is being generous in giving way. Devaluation is not necessarily the best thing going, but it helps to take the strain for a currency that is weakening and therefore allows austerity measures to be perhaps less harsh than they would otherwise be. That is the point. There is no economic evidence to suggest that, if we did not allow devaluation to take effect, austerity packages would be worse and make the economic downturn much worse.

I can certainly understand my hon. Friend’s argument, but it is worth pointing out that devaluation is not a panacea and should not be used frequently.

This country has devalued on a trade-weighted basis by 25% since the peak in 2008. If we had not had that devaluation, this country would now be inflicting on itself a far harsher austerity package and unemployment would be far higher. Without the devaluation mechanism, countries face far starker choices.

This Government’s real achievement is to address the deficit. They have set out a plan that is effective and encouraging markets to understand that we are taking the appropriate action. That is one of the benefits of being outside the euro, and we should focus more on that, rather than worrying about the benefits or otherwise of devaluation. I repeat for the last time that I do not think that devaluation is a panacea that we should be pursuing.

What is my hon. Friend’s evidence for the success of the reduction of the deficit? Growth is running at almost zero, and much of that comes surely from the fact that we cannot trade with a completely stagnant Europe.

One of the obvious pieces of evidence is that we are not talking about the IMF coming to bail us out—a huge achievement by the Government that should be recognised. We will have to move on from devaluation, but I think that I have made my point and others have attempted to make theirs.

Inflation would certainly help debt reduction, because it does in the long run. As I said in an intervention, when Denis Healey borrowed money from the IMF, that did arrest devaluation. We were more easily able to pay the IMF back quite quickly because of the impact of inflation. I do not support inflating the economy in that way either, as a remedy.

In the late 1970s, inflation was coming down quite rapidly from a height of 26% in 1975. One could argue that there has been a deliberate policy by the Bank of England, perhaps in cahoots with the Treasury, to allow a little bit of inflation to go into the system. That is exactly what is happening here in the UK, where historically we have had high real inflation, which is having a major impact on all our constituents’ living standards.

Inflation did go down, but after the IMF loan was made. It reached a peak in 1976, which I think was 26%. That happened to coincide with the time of the IMF loan, so that is the position that we should discuss.

My hon. Friend has been very generous in giving way. He will accept—will he not?—that we should not have stayed in the exchange rate mechanism.

Well, we were blasted out of the ERM. We do not want to repeat that fiasco, and we should all recognise that.

We talked briefly about the United States. Gerald Ford, President of the United States in the mid-1970s, refused to bail-out New York, and quite right, too. He was a fiscal conservative. That was the right decision in the long run, and, of course, a decision that did not affect New York’s membership of the dollar. I just wanted to put that on the record.

We must focus on two things, and the Prime Minister identified them both in his speech yesterday. I want to ram home the importance of reforming the European Union, because that is what it needs. In particular, we have to drill down on the single market, to ensure that it is a single market and that competitiveness in goods and services is enhanced. We can really do that.

On euro measures, this country would be making a big mistake if we assumed that the euro will not affect us significantly, because it certainly will. [Interruption.] I shall wind up. I have been so generous with interventions that I do not have the time to point out that we need fiscal union in the eurozone, the ECB to be enhanced—as my hon. Friend the Member for Cities of London and Westminster (Mark Field) rightly said—and much more rigorous auditing of what is going on.

Last but not least, there is a democratic deficit, although the IMF extension was discussed in the House and we voted on 11 July. I have noticed two things. First, Germany and France are effectively bypassing the Commission in a lot of their decisions—

Order. The hon. Gentleman has gone on beyond the time at which I said that I wanted to start the winding-up speeches. Many Members have asked the Minister questions to which they want to hear the answers. I should be grateful to the hon. Gentleman if he stayed seated now.

I was interested to hear the comments of the hon. Member for Stroud (Neil Carmichael). I have learnt a lot, including Gerald Ford’s attitude to New York city and the history of the Ugandan shilling. At one point in the debate, I was almost feeling sorry for the Minister, given the heat that he is falling under and that he is simply following orders—it is not entirely his fault—but in the short time available, he needs to explain not only the answers to the questions asked, in particular by the hon. Member for Basildon and Billericay (Mr Baron), who gave a thorough and refreshing contribution, but an area of policy that has not been touched on as much as it should have been and that is central to the debate, which is growth. How will we rejuvenate growth, not only in the UK but throughout the eurozone, as a way to solve the crisis?

The Office for Budget Responsibility continues its relentless drive to downgrade economic prospects, and the European Commission has forecast a massive change in our fortunes. Last year, gross domestic product growth was supposed to be 2.2% in 2011, but a couple of weeks ago, that prediction was downgraded to only 0.7%. We are now forecast to have the slowest growth in Europe, with only Greece, Italy, Portugal and Cyprus growing more slowly in 2011. The Office for National Statistics, however, shows that exports to the euro area were rising by 17.3% in the third quarter, so the eurozone alone cannot be an excuse for the UK’s lack of growth.

Given the fragility of our economy and our vulnerability, I accept that prolonged uncertainty in the eurozone could worsen our position, but it would be disingenuous of the Treasury to suggest that our woes are caused by the eurozone situation. I would be worried if it genuinely thought that to be the case.

Not in the short time that I have available. I prefer to hear the Minister and to deal with particular issues, some of them raised by a number of hon. Members. For example, the hon. Member for Cities of London and Westminster (Mark Field) discussed bond yields and the dangers of the Government giving the impression that we are a safe haven relative to the rest of the world. I am worried about the complacency shown by the Government. Bond yields are as much a function of our relative independence from the euro and the flexibility of having our own central bank. The director of the National Institute of Economic and Social Research, Jonathan Portes, made it clear recently that our gilt yields declining to an all-time low was partly a result of the economy’s weakness, because safe-haven flows are typically accompanied by a rise in the value of the pound or rising stock prices. He could not have been more concise or clear:

“The reason people are marking down gilt yields is because the economy is weak”.

We should not see that entirely as the be-all and end-all of economic policy. The hon. Gentleman is right that we should see it not merely as a safe-haven function, but as a bubble that may burst at any point.

What should the Government be doing? The crisis is far from over, even though the markets have calmed somewhat this week. My right hon. Friend the Leader of the Opposition rightly pointed out that the European summit—the G20 summit—finished prematurely, without adequately solving the difficulties with the EFSF and the permanent bail-out arrangements, and that a further European summit might be necessary to thrash out the issues properly. We also need a proper strategy for jobs and growth throughout Europe and concrete steps to support demand immediately. We have to end the prevarication about the role of the European Central Bank as lender of last resort and to give proper attention to what it takes to make that EFSF firewall stand behind eurozone members.

Hon. Members mentioned the IMF in some detail. In the summer, before the details of the permanent eurozone bail-out fund had been agreed, the Labour party urged the Government to pause before granting additional funding to the IMF. We called for the commencement of the larger eurozone-only bail-out fund to be brought forward and for the Government to negotiate an end to our liabilities via the temporary EFSM. The Minister at the time did not explain what the UK Government were doing to help to ensure that an adequate and permanent EFSF was put in place and, as I said, the European summits came and went, despite the Prime Minister’s attendance.

Ministers, including the Prime Minister, have repeatedly misrepresented our view of the IMF’s role. Today’s debate shows that our concerns are shared across the party divide. Tim Geithner in the United States and people in many other countries have also voiced their reservations. In principle, because of the IMF’s generally vital role in the global economy, we support an increase in its subscription, but I make no apologies for questioning the Government’s stewardship of our public funds. We have a duty to protect the best interests of the UK taxpayer.

We have consistently said that the IMF’s job is to support individual countries with solvency crises and not to solve a structural problem caused by eurozone countries unable to agree the necessary steps to support and maintain their own monetary union. The IMF does have a role around the world and should have the necessary resources, but there should be no IMF funding to plug the gap in the eurozone’s bail-out fund and to do the job that the ECB should be doing. The only way to ensure market confidence in the eurozone is for the ECB, alongside that permanent bail-out fund, to be given the political support that it needs to act as lender of last resort when liquidity problems arise. That is the logic of monetary union that the 17 eurozone countries are signed up to.

I want to hear the Minister’s answers, so I will curtail my remarks. It is vital for the Government to wake up and realise the role that a growth strategy must play in Europe and in the UK. Without that, there could be serious ramifications for the UK and our economy. If the Government fail to act as an honest broker, stepping up to show the leadership that many hon. Members have urged in today’s debate and so that the ECB becomes lender of last resort and that the EFSF has enough weight to become an effective firewall, the eurozone crisis may well deepen further. The Chancellor continuing to talk about Britain as a safe haven betrays a relaxed complacency in the Treasury that is not warranted. Such an approach is misinformed, neglectful and very dangerous in the situation that we face.

I congratulate my hon. Friend the Member for Basildon and Billericay (Mr Baron) on securing the debate.

Let me be absolutely clear: it is in our vital national interest that eurozone states reach a coherent, comprehensive and lasting solution. First and foremost, they must implement the agreement reached towards the end of October, which involves a three-pronged strategy to recapitalise the European banks, resolve the situation regarding Greek debt and reinforce the EFSF to create a firewall between Greece and other vulnerable euro area countries. The new Governments in Greece and Italy need to show that they can implement the tough measures required to deal with their debts and make their economies more competitive. Uncertainty in the eurozone is undermining not just their economies, but ours. A return to stability in the eurozone will benefit our economy, whereas continued uncertainty will harm it. My hon. Friends the Members for Cities of London and Westminster (Mark Field) and for Wimbledon (Stephen Hammond) made that point.

We have a clear interest in greater certainty in the eurozone, but at no point have we committed, or will we commit, any British taxpayers’ money to a special purpose vehicle, or through the EFSF or the ESM, either directly or through the EU budget.

If I may be so bold, the Financial Secretary is coming up with the economic clap-trap that we must all save the euro. Does he accept that binding divergent economies into a single currency without fiscal union was and remains a massive mistake? It is as simple as that. The world will not fall apart if the euro breaks up, and countries such as Norway and Switzerland have proved that by trading with the eurozone using their own currencies.

My hon. Friend is absolutely right, which is why we did not join the euro in the first place. The remorseless logic of monetary union, as he said in his speech, is fiscal union. Fiscal union is necessary for monetary union to work. That is what we are seeing throughout the globe, and that is why we said that eurozone members must make greater progress towards fiscal union.

If the Financial Secretary accepts the logic about the deficiency of the euro, are the Government joining in the chorus that we must all come together and save the euro?

As I have said, uncertainty and problems in the eurozone have a damaging impact on the UK economy and have a chain effect on what is happening here in the UK. It is not in our economic interest for that to continue. Just last week, John Cridland, director-general of the CBI, commented on the negative impact that the problems in the eurozone are having on the UK economy. We are an open economy and our European partners are our largest trading partner, so it is in our interest to ensure that the eurozone works. That will be of huge benefit to the UK economy.

I would like to make some progress. Let me address UK commitments through the IMF, which is the centrepiece of this debate. In a carefully worded statement, the hon. Member for Nottingham East (Chris Leslie) covered Labour’s retreat on its IMF policy. He was bravely leading his troops through the No Lobby in July without the support of the architects of the G20 London deal. The former Prime Minister and the former Chancellor were not there. What has happened? Last week, his boss, the shadow Chancellor, cut his legs from under him by saying that

“the Labour party supports an increase in the UK’s International Monetary Fund subscription”.

I do not think the hon. Gentleman is in a position to lecture anyone about consistency and principle.

As a founding and permanent member of the IMF, and as one of its largest shareholders, we continue to be a strong supporter of its role as a global backstop to the world economy. Currently, 53 countries are being supported by the IMF, of which only three—Greece, Ireland and Portugal—are in the euro area.

Let me continue. As a founding member of the IMF, we recognise its important role in stabilising the global economy in times such as this. That is why we participated on the nine previous occasions when its quota was increased. In these turbulent times, it is essential for confidence and economic stability that the IMF has the necessary resources, and there may well be a case for further increases. At the G20 two weekends ago, Britain, the US, China and all the other countries round the table made it clear that in principle we are willing to have an increase in IMF resources to boost global confidence. We stand ready to contribute within limits agreed by the House and set out in the International Monetary Fund Act 1979. That limit, denominated in the IMF’s units of account—special drawing rights—stands at 38.8 billion SDRs, or about £38.3 billion pounds.

Let me remind the House that no one who has lent money to the IMF has ever lost that money. The money goes directly to the IMF and not to individual countries. It is one of the most creditworthy institutions in the world, and its loans are afforded preferred creditor status, which means that they are first in line to be repaid, even if not all other creditors are paid. Consequently, no country has ever lost money as a consequence of lending to it.

There has been no agreement about the timing, extent or exact method through which IMF resources will be increased, but an immediate need is to implement existing plans to increase its resources. Let me make clear how IMF resources will be used. Any increase must be available to all its members and not reserved for use only by the euro area. There can be no hypothecation, and money is lent to the IMF, not to specific countries.

The use of IMF resources is linked to the question of the need for economic reform. All hon. Members recognise the need for the euro area to reach a comprehensive resolution to the crisis, and clearly it is for the euro area to resolve that crisis. That resolution cannot be simply through recapitalisation of banks, the creation of a euro area bail-out fund or resolving the problems in Greece.

Perhaps my hon. Friend will be patient. There are areas where the eurozone needs to tackle its competitiveness to respond to those issues. There is the question whether IMF money is conditional on structural reform to improve competitiveness. The answer is yes, because conditions are built into IMF programmes to ensure that competitiveness changes take place. Portugal, for example, has an extensive programme of privatisation, and the Portuguese Government’s right to be involved in private companies must be abolished. In Ireland, legislation has been passed to increase the state pension age to provide a significant boost to long-term fiscal stability. In Greece, the Government are discussing breaking the link between the national minimum wage and the annual inflation rate, and market reform is being promoted to allow businesses to set wages independently of collective agreements.

Let me continue. I have only three minutes left, and I want to ensure that I address as many of my hon. Friends’ questions as possible.

We are seeing structural reform to improve the competitiveness of economies hand in hand with IMF programmes. I hope that that will reassure my hon. Friends that reform is taking place in those countries to ensure that they meet their international obligations.

Returning to a previous point, I suggest that the reason why the eurozone crisis is causing a bit of a problem over here is that existing policy is making the situation worse. Denying devaluation is forcing greater austerity packages on populations that are already trying to pare down their debt. That is the problem that the Government do not see.

May I take my hon. Friend back to devaluation? The Government make great play of the fact that only three of the 53 packages go to the eurozone. Can he name one programme outside the eurozone where a country cannot devalue?

My hon. Friend seems to believe that devaluation is necessary to restore economic growth. That is not the case. Ireland is a country that cannot devalue, but a consequence of how it implemented its reform programmes is that in quarter 2 growth increased by 1.6%, with a 2.3% increase year on year. That demonstrates that devaluation is not necessary to improve a country’s competitive position, for it to earn its way out of problems or for it to grow. Devaluation may make life easier, but it is not impossible for an economy to grow, even if currency devaluation is not possible. In September, the troika concluded that the programme is on track and remains well financed. In Ireland, the authorities are implementing a programme policy.

In the euro area, we are seeing programmes to restore competitiveness, but those reforms must be made throughout the eurozone, if the eurozone is to strengthen and help to underpin economic growth in the UK. No request has been received as yet for additional resources from the IMF, but the role that it can play in underpinning global economic stability is important, and this is an opportunity that the UK should consider if we are to resolve some of the problems in the wider global economy, tackle the fragility and, by definition, improve stability in the UK.