The Eurozone Crisis
November 15, 2011
Mark Field (Cities of London and Westminster, Conservative) I thank my hon. Friend 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. I
ndeed, 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.
Douglas Carswell (Clacton, Conservative) 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.
Mark Field (Cities of London and Westminster, Conservative) 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.
Douglas Carswell (Clacton, Conservative) Does my hon. Friend not agree that today Argentina has a better bond rating than many eurozone countries and that that shows the way?
Mark Field (Cities of London and Westminster, Conservative) 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 of 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.
Ian Paisley Jnr (North Antrim, DUP) Will the hon. Gentleman give way?
Mark Field (Cities of London and Westminster, Conservative) 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 International Monetary Fund.
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 it 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 earlier 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.