European Affairs

Part of the debate – in the House of Commons at 5:17 pm on 9 December 2008.

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Photo of Edward Davey Edward Davey Shadow Secretary of State (Foreign Affairs), Liberal Democrat Spokesperson (Foreign Affairs) 5:17, 9 December 2008

I think that that was supposed to be a helpful intervention, but we know what President-elect Obama wants to do. He wants to do the sort of things that Britain, France and the European Union are doing. He has said that clearly on the record.

There has been some debate in the press, and earlier in our proceedings, about the position of the Germans on the fiscal stimulus. The Foreign Secretary read out figures referring to 1 per cent. of GDP and so on. Yesterday, I was privileged to be able to speak to some German parliamentarians who gave me the true facts behind the German stimulus package and told me how they thought things were working in the Bundestag. The €50 billion stimulus package that has been put forward contained many measures that they were going to introduce any way, so it really does not amount to 1 per cent. of GDP. It was fair for the Foreign Secretary to read out those figures, but they do not quite stand up to the analysis he provided.

However, Chancellor Merkel is having a few problems, and it is clear that she might be changing her mind as the hours tick by. She has called a crisis meeting with the German equivalent of the CBI on Sunday, and as German output is plummeting, the cries that action be taken by the German Government are getting louder. I hope that by Thursday or Friday, Chancellor Merkel might have moved on a bit and that our Government will therefore keep the pressure on. The problem is that she is slightly trapped—as is the Finance Minister who is her Social Democrat partner—by probably the only political pledge that they gave in order to have a balanced budget. Electoral problems—internal domestic German politics, not economic rationale—are actually preventing the Germans from going for the stimulus. Let us be absolutely clear about that. We have got to persuade both the Chancellor and her colleague that it is in their political interest, and in Germany's interest, to join in with this stimulus. If that can be done, it will be far more effective.

The other issue relating to the economic crisis in Europe is the position of the euro, and the right hon. Member for Richmond, Yorks had some fun on that point. There are different views on that, both in this House and across Europe. Many of the smaller European countries have looked at Iceland and Denmark and said, "We're really delighted that we are in the euro." Talks with the bigger countries have also revealed that they are pleased because the euro has meant that there have not been big depreciations in the weaker economies, which would have caused problems for the German economy and the other big economies, and made their recovery much more difficult. There is a strong argument to suggest that the euro has been a good thing for those who are already in it.

The next few months and years will be a testing and interesting time because we will see whether the euro is as strong as those of us who agree with it believe it to be. There is no doubt that the test for the euro was always going to be the first major recession—and this will, I fear, be the recession of all recessions. If the euro can withstand a recession, it will show that an optimal, single currency area in Europe is completely sustainable. The pressures that exist have already been shown by what has happened in the bond market and the fact that the different yields on bonds between Germany and some of the other weaker economies have been increasing in recent weeks, particularly in Italy, Spain and Greece, which is not surprising given the problem of their debts. However, no one is talking about those countries being forced to leave the single currency, and that is a fascinating and significant fact. Who knows whether that will still be the case in a year's time, but if the euro does survive with all the current member states intact, that will—