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EU: Euro Area Crisis

Volume 737: debated on Thursday 24 May 2012

Question

Asked by

To ask Her Majesty’s Government what assessment they have made of the effect on the European economy and financial institutions of the crisis in the euro area.

My Lords, the Government make regular assessments of the economic situation as part of the normal process of policy development. The OBR, the OECD, the European Commission, the IMF, and many others expect a euro area recession this year. As we have said, if the euro area does not definitively sort out its ongoing problems, the uncertainty that that will create and its impact on confidence across Europe will continue to have a chilling effect on Britain and the global economy.

My Lords, does not Germany bear some responsibility for problems in the eurozone in that it was Germany that turned a blind eye when Goldman Sachs fixed Greece’s books to secure its entry into the euro; it was Germany that turned a blind eye to breaches of GDP limits in the European stability and growth pact; and it was Germany that promoted the euro currency to prevent regional devaluations in neighbouring nation states, thereby protecting its own export markets within Europe? Surely Germany should show a little more flexibility in these matters.

My Lords, the key issue about Germany in relation to this Question is that we should be grateful that the German economy continues to grow. About 9% of the UK’s exports go to Germany. It is a very important market for us and it is critical both for us and for the eurozone that Germany and its economy continue to perform relatively strongly.

My Lords, does my noble friend agree that countries which, for one reason or another, have to leave the euro area could well continue to use the euro as their currency rather than inventing a new currency, like perhaps the drachma, in which markets might have little or no confidence?

My Lords, many people have been painting scenarios of which my noble friend sketches out one. This is not the time to talk about different scenarios. We want to see an early resolution of the Greek uncertainty, the ring-fencing of other vulnerable economies, the recapitalisation of the banks and work on European growth. That has to be the priority for the moment.

The Government say that the eurozone countries must take decisive action. What decisive action do the Government have in mind?

Again, my Lords, I will not speculate on the range of scenarios. Plenty of advice has been given to the UK Government, to each of the individual Governments in the eurozone and to the eurozone collectively. The important thing is to get on with it. The next major milestone will be what the Greek people decide at their forthcoming election.

My Lords, does my noble friend agree that the British Government played a very constructive role in last night’s summit meeting? Will they use their voice to persuade Germany to think again about the business of collective Eurobonds, and enlarging the firewall to make it realistic? That would be an excellent and effective way, without causing inflation, of having a lower yield overall, which would get over the nonsense that eurozone market ratings at the moment are generally lower than those of the much more heavily indebted United States of America and Japan.

I certainly agree with my noble friend that my right honourable friend the Prime Minister played a very constructive role in the discussions last night and is clearly open to a range of ideas.

My Lords, would it not be in the UK’s best interests to recognise the major differences that exist? If we are to help in any way to avoid a messy break-up of the eurozone, would it not be in our best interests to help set up some kind of scheme that would bring about the usual kind of compromise that would help at least in the short term? The noble Lord said recently that the Prime Minister was right and might agree to some kind of support for a growth fund. Does that option still exist?

My Lords, as I said in answer to the previous supplementary question, we are playing a very constructive role at the table with the 27, discussing all the possibilities for getting Europe through the present crisis—not only short-term measures that need to be taken but important questions about sustainable growth and the structure of the single market. However, fundamentally it is for the euro area countries to take decisions now about the euro area’s very immediate problems.

What does my noble friend think about the article in the Times yesterday in which the German Foreign Minister said that within the European budget there were resources that could be used to stimulate the eurozone economy, including about €80 billion which remains unspent as we speak?

My Lords, within what needs to be tight discipline—tighter than has been exhibited in recent years—over the overall European budget, certainly these ideas of targeting funds better within the existing budget envelope need to be looked at very hard.

My Lords, when the noble Lord appears next on the BBC “Today” programme, will he remind listeners that stability bonds are not mini-Eurobonds? What is the Government’s view of stability bonds, which could be part of the growth agenda that we so badly need in the eurozone area and in the EU as a whole? Would we be prepared to join in?

My Lords, as I said this morning and on other occasions in the past week, we are prepared to look at ideas. Those that are being floated include increasing the lending capacity of the European Investment Bank and issuing project bonds. We will look at these ideas as they develop.