European Affairs

Part of Business of the House – in the House of Commons at 2:31 pm on 3rd June 2010.

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Photo of Gisela Stuart Gisela Stuart Labour, Birmingham, Edgbaston 2:31 pm, 3rd June 2010

It is a great pleasure to follow the maiden speech of Mark Garnier, not least because I still fondly remember having a photograph taken in 1997 with David Lock, the then Labour Member for Wyre Forest. We all had red balloons and we travelled down to Westminster together. I am glad to say that, apart from David Lock, all of those in the photograph are still in the House. I wish the hon. Gentleman well. I am sure that people in his local carpet industry would have had one or two things to say if it had been forced to "go metric" on the weaving shuttles; I am sure that he will have one or two particular points that he wishes to bring to the House.

I wanted to speak today because Europe is facing a political and economic crisis which, although it has been brewing for a considerable time, is, in some ways, being denied both here and abroad. It is a political elite that is in denial, and in some sense that does not surprise me, because I still bear the scars of spending 18 months in Brussels attempting to write a European constitution. The democratic mandate was ignored then, too, and a political elite essentially rode roughshod over the wishes of the electorate.

Frankly, no party here has much to be proud of on the issue of referendums, nor do the Governments in the countries across Europe whose people said no when asked-and were simply ignored, as happened in Holland and France. Ireland's people were simply asked twice; they were asked until they came up with the right answer. So there is something wrong going on in the house of Europe, and at the moment, that shows itself in terms of economics and the single currency.

Those who have warned against some of the problems of the single currency take little pleasure in being tempted to say, "I told you so". People need to face up to what is happening at the moment, because this is not a question of one member of the eurozone having a financial crisis from which they can simply be bailed out. A bail-out is not the answer to the problem, nor is it in the current treaty provisions. The central issue in Greece is not associated with the pubic finances, although those are a problem. The real question is what happens when a country in the current monetary union loses competitiveness and cannot regain it. In essence, we are asking Greece to implement what amounts to two thirds of a traditional IMF package, which usually involves raising taxes and cutting public expenditure. However, the third and crucial element that always comes with recovery is depreciation of the currency, and that adjustment is not happening.

What the European monetary union calls "internal depreciation" has to replace a currency depreciation, but that is nothing other than a polite phrase for debt deflation. The programme currently recommended for Greece will crush output and increase both unemployment and private sector default. It will reduce Government revenues still further, and make public sector default and national bankruptcy even more likely.

Some people in countries such as Germany think that every country in Europe should behave like the Germans. As someone born in that country, I think that that is a perfectly reasonable expectation-but it is not the answer, as we cannot answer our economic problems by requiring every country to run a trade surplus. To be fair to Germany, it got out of its own economic crisis of the late 1990s and the first years of this century only at the expense of some of the other countries in the EMU.

So what are we going to do? Two solutions offer themselves. One is to transfer funds from countries with a current account surplus-in effect, those in the German bloc-but that assumes that a one-off payment is the answer. It is not. What is really required are year-on-year transfers, equivalent to what West Germany paid to the old East Germany. Let us be clear about this, however. Just for Greece, such a year-on-year transfer would amount to something like €35 billion to €40 billion a year. If we were talking about the default for Spain and Portugal, we would be looking at something like €100 billion a year, and that would wreck not only the German economy but its public finances as well.

The second solution would involve a massive devaluation of the euro.

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