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Eurozone

Oral Answers to Questions — Treasury – in the House of Commons at 2:30 pm on 6th September 2011.

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Photo of David Nuttall David Nuttall Conservative, Bury North 2:30 pm, 6th September 2011

What recent assessment he has made of the financial crisis in the eurozone.

Photo of Glyn Davies Glyn Davies Conservative, Montgomeryshire

What recent assessment he has made of the financial crisis in the eurozone.

Photo of George Osborne George Osborne The Chancellor of the Exchequer

The financial crisis in the eurozone is extremely serious. Fortunately, Britain is not in the euro; unfortunately, however, we are not immune to the instability on our doorstep. The euro area must implement its policy commitments to address the crisis, made most recently at the July summit. As I have said, the euro area should follow the remorseless logic of monetary union with greater fiscal integration. We must ensure that we are not part of that integration and that our national interests are protected and promoted at all points.

Photo of David Nuttall David Nuttall Conservative, Bury North

I thank the Chancellor for that reply. Given that the crisis in the eurozone was caused by some member states having too much debt, would it not be a good idea—rather than increasing those debts with further bail-outs—for this country to press for the European treaties to be amended to allow a country to leave the euro while remaining in the European Union if it still wished to do so? As things stand, that is not possible.

Photo of George Osborne George Osborne The Chancellor of the Exchequer

As my hon. Friend knows, the treaty does not provide for a member state to leave at the moment, and there is no immediate prospect of major treaty renegotiation—something that the German Government have made very clear again this week. In other words, we need to focus on the task at hand, which is implementing all the agreements, communiqués and commitments made in recent months by the eurozone. That is absolutely crucial to the stability, not just of the eurozone but of the wider global economy.

Photo of Glyn Davies Glyn Davies Conservative, Montgomeryshire

Is the Chancellor aware that under the previous Labour Government, of whom the current shadow Chancellor was a prominent member, a euro preparations unit with a staff of 17 worked for 13 years preparing 11,500 documents to prepare Britain for joining the euro?

Photo of Julian Brazier Julian Brazier Conservative, Canterbury

Would my right hon. Friend accept that the fact that the euro has strengthened as a currency indicates that the markets believe that the weaker countries will not be able to push water up hill for much longer and are bound to drop out of the euro before very long?

Photo of George Osborne George Osborne The Chancellor of the Exchequer

I do not think that it would be appropriate for me to comment directly on the value of the euro, but I would observe that we have a weak US dollar and that that may have had an impact on the value of the euro. As I said just now, it is important for us to focus on the task in hand, which is implementing the agreement most recently signed on 21 July by the eurozone. Of course we can and should have a discussion about the future of the euro and its governance arrangements—and that is important—but the euro is here to stay and we have to ensure that it works for Europe. I do not want Britain to be part of the euro, and there is no prospect of that happening—[ Interruption. ] Labour Members seem to forget that they are still committed in principle to joining the euro. This Government will not join the euro, but it is in our interests that the euro works.

Photo of Stuart Bell Stuart Bell Labour, Middlesbrough

Is the Chancellor aware that, with the exception of Portugal, growth among member states of the eurozone is higher than ours? If fiscal union is to take place, and there is to be a common euro bond, in which order does he think they should come?

Photo of George Osborne George Osborne The Chancellor of the Exchequer

As I have been saying in recent weeks, we need to follow the remorseless logic of monetary union. That was one of the reasons I was against Britain joining the euro—I thought it would lead to greater fiscal integration and common budget policies. There is obviously an active debate about what that might mean, and I would suggest that the first thing that the eurozone countries need to do is to implement the package agreed on 21 July.

May I correct the hon. Gentleman? It is not the case—sadly—that Britain has the slowest growth in Europe. Actually, the problem is that German growth in the last quarter was 0.1% and French growth for Q2 was zero. That is the challenge—a eurozone where growth is faltering, and the situation in the United States. We have to deal with these international problems as well as addressing the very serious problems that we inherited.

Photo of Andrew Tyrie Andrew Tyrie Chair, Treasury Sub-Committee, Chair, Treasury Committee

The Chancellor has made it clear that he thinks that a monetary union requires a fiscal union. Can a credible fiscal union be put in place without a treaty change?

Photo of George Osborne George Osborne The Chancellor of the Exchequer

I think that we can take important steps towards greater co-ordination of fiscal policy by implementing, as I say, the agreements that the eurozone came up with before the summer. That is the task at hand now. Speculating now about major treaty change is unrealistic. It is not going to happen in the next few years. It would take several years to bring about such a major treaty change and get it ratified by all the national Parliaments, even if those Parliaments agreed to it. The challenge this autumn is to bring greater stability to the euro’s governance arrangement, which is what our colleagues in the EU want to do.

Photo of Angela Eagle Angela Eagle Shadow Chief Secretary to the Treasury

The Chancellor recently boasted that Britain is a safe haven from the problems in the eurozone, so will he tell us which EU countries have grown more slowly than the UK in the past 12 months, not in the last quarter?

Photo of George Osborne George Osborne The Chancellor of the Exchequer

As I said, this year, unfortunately, the German economy, the French economy and other major eurozone economies—[Hon. Members: “Ah!”] If Opposition Members do not want to look at the most recent numbers, it is no wonder they have not got a credible economic policy. Until they get one, and take a view on the eurozone and what is happening in Germany, France and the United States, they are not going to be taken seriously, as the former Chancellor of the Exchequer, Mr Darling, has reminded them.

Photo of Angela Eagle Angela Eagle Shadow Chief Secretary to the Treasury

I do not think that the Chancellor knew the answer to that question, but today’s euro figures have revealed that only two countries—Romania and Portugal—have done worse on growth than the UK in the past year. Only yesterday, the Minister of State, Department for Communities and Local Government, Greg Clark, said from the Dispatch Box that there was a crisis of growth in this country. Was not the Chancellor’s friend, the new head of the IMF, Christine Lagarde, right at the weekend when she said that

“growth is necessary for fiscal credibility… We know that slamming on the brakes too quickly will hurt the” economy “and worsen job prospects”?

We know that he will not listen to us, but why does the Chancellor not listen to sound advice from his friends, including, we hear, on this weekend’s draft G7 statement, which aims to slow the pace of deficit reduction—

Photo of George Osborne George Osborne The Chancellor of the Exchequer

I can tell the House that Christine Lagarde will be in London on Friday. We will hear what she has to say then.