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Finance: Eurozone

Volume 729: debated on Tuesday 19 July 2011


Asked By

To ask Her Majesty’s Government what discussions the Chancellor of the Exchequer has had with other European Union Finance Ministers about financial problems in the eurozone.

My Lords, the Chancellor of the Exchequer regularly discusses the situation in the euro area with his European Union colleagues, including in bilateral meetings and at the Economic and Financial Affairs Council. The most recent ECOFIN meeting on 12 July, which the Chancellor attended, covered the situation in the euro area, and a number of previous ECOFIN meetings have also discussed this. The Treasury continues closely to monitor financial developments in the euro area.

My Lords, the Chancellor was quoted as saying—I hope that the noble Lord does not mind me quoting him—that they should try to obtain a settlement whereby banks are more heavily capitalised. That was a very sensible suggestion, although it might be difficult to achieve. I hope that the noble Lord is not complacent that, if the crisis really hits the eurozone, simply because we are not in the scheme we will be all right since it will not cost us any euros. We would not have to bail out European banks, but we would have to bail out UK banks that got into serious trouble. Does he accept that it would be sensible for the Chancellor to be much more positive about trying to achieve a deal? Indeed, if he can get a sustainable deal that is recognised internationally, he should go as far providing guarantees because that would be a sensible move which would safeguard UK taxpayers from tens if not billions of euros.

My Lords, the Government are not the least complacent about the very serious situation in the eurozone, as evidenced by not only the continuing discussions around the next stage of the programme for Greece but also the situation of Italy as regards the capital markets and its interest rates recently. The most constructive things we can do are, first, to make sure, as the FSA and the Bank of England are doing, that the UK banks are subjected to stringent stress tests; and secondly that they continue to build up, as they have done satisfactorily so far, their capital liquidity positions. In his discussions with the eurozone, my right honourable friend the Chancellor has made it quite clear how supportive the UK is not only of the short-term measures in which we are not directly involved—the Eurogroup discussions around Greece—but also through ensuring that Europe presses ahead with the structural adjustments that are needed to bring sustained growth to Europe. At the same time, we also make it abundantly clear that it is for the eurozone itself to finance further bailouts and that the UK, as has been agreed in the context of Greece, is not going to be a direct participant in these bailouts.

My Lords, is it not clear, as the noble Lord, Lord Barnett, has pointed out, that while we all obsess about Rupert Murdoch and News International, there is a much more serious crisis actually brewing on the European continent? Is it not clear that two paths are open to the eurozone? One is to recognise a default by Greece now; or if that is judged too risky to the banking sector, for the eurozone then to come up with what it has always promised, which is to do whatever is necessary to stop the bickering among the 17 Governments, to stop the arguments for the European Central Bank and to come up now with a comprehensive solution rather than delay it until the autumn, which will be immensely damaging to Italy and not least to other countries both inside and outside the eurozone?

I certainly agree with my noble friend about the relative seriousness of different crises that are going on at the moment, and I repeat that the crisis in the eurozone is extremely serious. As to prescriptions and questions about what the eurozone would do, my noble friend speaks words of wisdom. However, it would not be appropriate for a UK government Minister to lecture the eurozone as to what to do. We shall look with considerable interest at what the meeting of eurozone leaders over the next two days comes up with. It is important that they make further considerable progress.

My Lords, is the Minister aware that some of us do not believe in exaggerating the problems of the eurozone or using the word “crisis”, which is immensely damaging and should not be used by Her Majesty's Government? Is he aware that, overall, the eurozone has been a great success? A vast amount of eurozone paper is held willingly throughout the world and ever more trade is being carried out in euros. Is it not about time that Her Majesty's Government took at long last a more positive attitude both to the eurozone and to Europe in general?

My Lords, we take as a Government a very positive and pragmatic attitude towards Europe and the eurozone. It is after all where 40 per cent or more of the UK’s exports go. We wish the eurozone success. In the ways that I have sketched out and we have discussed on other occasions, we will be supportive, particularly on completing the single market and putting in place structural reforms. At the same time, it is right for countries to make their decision as to whether they want to be in or out, and the UK has made and continues to make the right decision about where we are.