Part of the debate – in the House of Commons at 4:54 pm on 20 January 2009.
There is not much time left, so I shall try to be brief. I welcome this opportunity to debate the economic crisis and an EU response to it. We are seeing a series of national responses with some more words about co-ordination and solidarity, with the EU limping along behind and coming up with its own strategy. In reality, it is the national strategies that are being undertaken.
It is right that other countries are starting to imitate what Britain has done. We have yet to see whether it will be enough or whether it will work, but at least we have taken some strong action. Germany has now followed suit, although it was initially critical. It is beyond the EU's ability to cope with the crisis, because its whole economic philosophy is inherently deflationist and the opposite of what is required, which is reflation.
The documents that we are considering show some interesting contrasts. The EU is still trying feebly to promote its neo-liberal clap-trap—the very policies on liberalisation, supply-side monetary constraints and so on that have led the world to crisis. The UK Government's response is more realistic and pragmatic and differs significantly in tone from the documents. I am pleased about that. I agreed entirely with the Conservative spokesman when he said that the British Government were a better judge than the European Union of what is best for the British economy.
Even the EU documents have changed their tone between October and November. By November, the supply-side words were still there—the usual nonsense—but the recovery plan had started to talk about swiftly stimulating demand, words that possibly have not featured in EU documents ever before. They perhaps recall the words of Keynes, who saw his way to creating an economic system that worked after the second world war.
Co-ordinated reflation was one of the slogans of those who, like me, long supported the alternative economic strategy, as it was called. Co-ordinated reflation is what we need now, but we will not get it if countries cannot indulge to an extent in some defence of their economies. If they are simply going to reflate and suck in imports, they will not benefit their economies. Some degree of protectionism, I think, will happen. It is already happening in America.
The word "protectionism" has been used as a hostile epithet for the common economic policies that I have supported in the past, but if one looks back to the 1930s, one sees that the depression was caused by deflationist policies, particularly in France and Germany. Sir Peter Tapsell has mentioned that in recent debates, and he is absolutely spot on. When countries reflated behind tariff barriers, it helped them to recover. That was particularly true of Britain. Another way of protecting one's economy, of course, is to depreciate one's currency. We came off the gold standard in 1931, and that helped us to stimulate the economy.
There is also the question of fiscal stimulus. It might be that in the 1930s America did not benefit quite so much from fiscal stimulation, but Britain certainly did. Let us consider Nazi Germany—I would not imitate everything that it did, but it built like there was no tomorrow. It built a massive arms industry and motorways and put all its people back to work. That was not done by monetary measures but by fiscal stimuli and public spending. The economics, if not the politics, were certainly right. I would have built hospitals rather than arms, but it did the right thing.
In the EU, a number of countries are going to suffer badly because they are in the eurozone. Ireland is a particular example. In contrast to what the Liberal Democrat spokesman said, a report in The Independent today suggests that Ireland will suffer most, with a 5 per cent. contraction, followed by Germany, interestingly. Germany has always been lauded as the great success in the past, but it is also a mirror image of us. We are a country with a balance of trade deficit, but the Germans have had a balance of trade surplus. That surplus is in serious danger because of declining demand in the international market. The Germans will have a serious problem. Keynes was absolutely right to say that big surpluses and big deficits were wrong and that countries should be able to appreciate or depreciate their currencies to deal with them. If we want stability in the world economy, we have to allow countries to adjust their economies. Indeed, we must encourage them to adjust their economies to ensure that they do not get strongly out of line, as Germany is in one direction and we are in the other.
Spain has got problems, and how is Italy going to recover without withdrawing from the euro and devaluing? I think that Italy has to think seriously about its membership of the eurozone. There have been civil disturbances already in Greece, but I think that Germany has a very serious problem. I hope that the Germans are sufficiently intelligent to deal with it; I worry about disturbances in any country, but disturbances in Germany would be more worrying than most.
This has been a very brief debate and I am running out of time, but I suggest that we must think seriously about reconstructing the Keynesian world that we had between 1945 and 1970. It was regulated and stable, and it grew rapidly, with living standards rising faster than at any other time in our history. We must seriously consider reconstructing the world economy on that basis.
Annotations
Bernard Keeffe
Posted on 21 Jan 2009 12:59 pm (Report this annotation)
This debate is most reveaing for it touches on areas of policy that affect every citizen. It strongly demonstrates the failure of the media, especially the BBC to give regular accounts of EU affairs. HOw often has anyone received any information from his/her MEP. Does any MP know how their colleagues voted on crucial
legislation that affects the UK. I learned from Farming Today at 5.45 am that farmers are unhappy about a new limitation of the use of pesticides. I gather that the PM welcomes it but has anyone read or heard a word about the voting on this measure in the European Parliament. Will it be considered at Westminster or just implemented without reference to UK farming interests?
What is the point, indeed of my writing this - will anyone read it?