Let me update the House on this weekend’s G20 and International Monetary Fund spring meetings and the Government’s decision to make a loan of just under £10 billion, or $15 billion, to boost the IMF’s reserves.
As I have said to the House on many occasions, Britain has always been one of the IMF’s largest shareholders and biggest supporters. We helped to create the institution over 60 years ago, and our predecessors determined that countries would never again turn their backs on the world’s problems, but instead come together to solve them. In every single decade since the 1940s, the UK has been part of global agreements to increase the IMF’s resources. Why has every single post-war British Government done that? It is because they recognised what we again recognise today: that Britain, as a proud, open, trading nation, has a huge national interest in a strong IMF as a force for stability and free markets; and that Britain exerts its influence in the world partly through the institutions it helped to create, such as the IMF, where we remain one of the few countries to have our own seat on the board.
That was the case 60 years ago when the world recovered from the ravages of a global conflict borne out of depression and disastrous economic nationalism. It was the case when Latin America struggled in the ’80s and the Asian economies collapsed in the ’90s. It was the case at the London G20 summit, when Britain’s economy was at the centre of the storm. It remains the case today, as we cope with the biggest debt crisis of any of our lifetimes, and when the epicentre of the problem now lies on our doorstep in Europe and with some of our largest trading partners, including Ireland, the home of banks deeply connected to our own banking system.
We will not turn our back on the IMF, or turn our back on the world. That would be a betrayal of our country’s interest and our country’s identity, and incidentally, it would at the same time be a betrayal of my party’s history.
It is because of the decisive action this Government have taken to deal with our own debts that we can now be part of the solution and no longer part of the problem. Let us not forget that in 1976 under a Labour Government this country itself needed an IMF bail-out. If we had a Labour Government today, their Chancellor could very well be explaining to the House the heavy terms of a loan from the IMF, not a loan to it. Instead, we have taken action that means Britain is a safe haven in the storm—action that means interest payments are lower for families, businesses and the taxpayers who are funding the huge national debt that has been racked up in recent years.
However, in the modern, global economy, we simply cannot act alone. At the annual IMF meetings last autumn, there was a real sense that the world economy was staring over another precipice. The feeling at these spring meetings was that we had stepped back from the brink but that the risks remained. Markets are calmer, banks are finding funding and signs of confidence are emerging—figures last week in Britain showed unemployment falling and retail sales up, and last week the IMF revised up a little its global and UK growth forecasts—but, as the IMF rightly warns us all, the global economy remains very fragile. We see that in the Spanish bond spreads and the disappointment over the latest American jobs data.
In such uncertain times, we want the IMF to be able to cope with whatever is thrown at it—the worst-case scenario—instead of hoping for the best, which is why, for almost a year now, I have said that we would be willing to consider the case for additional resources for the IMF. I set out in January four conditions for British support. The first was that the IMF should only support countries, not currencies, and that is now clearly expressed in the communiqué issued this weekend. The second condition was that full IMF rigour and conditionality would apply to any future programmes. That too was agreed explicitly in Washington this weekend. Britain led the way in making it clear that that conditionality would not be restricted to a country’s fiscal policies but would also include structural reforms to increase growth.
The third condition was that we needed to see more resources from the eurozone for its own firewall—we had to see the colour of its money first. The IMF cannot be a substitute for action by the eurozone to stand behind its own currency. In December, the European Central Bank began its massive long-term liquidity operation, which we publicly called for and privately urged. Last month, the eurozone member states added €200 billion to their firewall, bringing the total to more than €700 billion. May I add that the Government have not added a single pound of British taxpayers’ money to those eurozone funds, having got us out of the commitments the last Labour Government sucked us into. Now, €700 billion is not as much as some wanted or what the IMF itself asked for, so, as I will explain, the size of additional IMF resources from non-eurozone countries is proportionate to the eurozone’s action.
The last condition I set was that other G20 countries had to make contributions—that Britain would not act alone. This weekend, we were very far from being alone. The eurozone provided an extra $200 billion to the IMF. France, which has the same shareholding as Britain, contributed $40 billion, and Germany, $55 billion. If it had just been the eurozone, Britain would not have contributed, but it was not: Japan contributed $60 billion; South Korea, $15 billion; Mexico and Singapore took part; and Australia, with a population one third our size and 10,000 miles from Europe, contributed $7 billion, with the support of all the main parties there.
European countries not in the eurozone have also committed loans—from Sweden and Denmark, to Switzerland and Norway, which are not even in the EU. Some have suggested that the BRIC counties did not contribute. That is not the case. India, Russia, and—yes—China have all made firm commitments to contribute resources and will set out the exact sums in the coming weeks. [Hon. Members: “How much?”] We will see in the next few weeks. The total of the expected commitments is set to be more than $430 billion.
It is true that America has not offered a loan, and mainly for that reason nor has Canada, but then America did not offer a bilateral loan at the London G20 summit. The reason the US Treasury Secretary gives is clear. The US, because it is the global reserve currency, has in the last few months offered dollar swap lines to the eurozone with outstanding balances peaking at more than $85 billion, which far exceeds any contribution anyone else has made. Its exposure is direct to the eurozone. What we and others have offered is something very different: a commitment to lend to the IMF should it need the resources.
In Britain’s case, that commitment is denominated in the IMF currency of special drawing rights and equates to just under £10 billion—about $15 billion. That is within the mandate authorised by the House of Commons and voted on twice in the past 18 months. As I set out to the Select Committee on the Treasury earlier this year, if I had felt that Britain should have contributed more, I would have asked Parliament for the authority to make a larger loan. However, $15 billion is in line with Britain’s quota share at the IMF—it is the same as previous loans we have made—and our loan is available only once the quota reform deal put together in 2010 is ratified by the required majorities of the countries that signed up to it. Our £10 billion is therefore proportionate to our shareholding and similar to our previous contributions.
Let me end by saying this. No one believes that a well-funded IMF on its own is the solution to the problems of the eurozone. Eurozone countries need to make painful adjustments to their public finances and external deficits. It is a difficult path that they have to walk, although the new Governments in the likes of Ireland, Portugal, Spain and Italy are walking it. However, that is the logic of the single currency that they are all committed to. That is why I am opposed to British membership of the euro, why I shut down the euro preparations unit in the Treasury and why under this Government Britain will never relinquish the pound.
However, opposition to our membership of the euro and the problems in the eurozone should not be a reason to turn our back on the IMF; if anything, they make the case for a stronger IMF. I know that when we offer our loan to the IMF, it is presented by some as British taxpayers simply handing over money to the euro—supposedly, money that we will never get back and which could have been used on public spending here at home—but just because it makes for an easy newspaper headline does not make it true. Lending to the IMF is a loan to the most credit-worthy institution in the world. It is a loan that comes with interest. The IMF has preferred creditor status: it gets paid back even when other creditors are not. It is true that, very occasionally, countries have defaulted on their obligations; but if eventually they want to regain access to international funding, they have to pay back debts to the fund, and in the end they all do. The IMF is designed to manage this. It lays down tough conditions, has large precautionary balances and sits on large gold reserves. That is why no country has ever lost money lending to the IMF in its 67-year history.
Let me be clear also that not a penny less will be spent on public services; nor will a penny more be levied in tax to fund our commitment to the IMF. Were the IMF to call for financing from the UK, we would exchange some of our foreign currency reserve for a claim on the IMF—in other words, we exchange a claim on one safe asset for another. That is why no one includes IMF loans in their calculations of Britain’s net debt or deficit, and nor do our sterling financing plans for the official reserves need to be changed. When it comes to lending to the IMF, therefore, I know of no other mechanism that is so clearly in the British and global interest, no other form of insurance against the world’s risks that has such potential benefits, and no other loan that can be provided with such low risks and which comes with interest.
At home, this Government have confronted head-on the debt problem that we inherited from the last Government; abroad, we support the international effort for global stability. We are guided by Britain’s national interest. Britain does not walk away from its problems; it confronts them. It does not turn its back on the world; it helps to lead the world. We will do everything abroad to support the IMF and everything at home to avoid a bail-out from the IMF. Keeping the UK safe is the overriding mission of this Government.
In thanking the Chancellor for advance sight of his statement today, let me begin by setting out three propositions on which I believe all parts of the House can agree. First, the ongoing crisis in the euro area is a major threat to the stability of the European and global economies, including Britain’s. Secondly, the International Monetary Fund is a hugely respected organisation that must be properly funded if it is to play its proper role. Thirdly, solving the euro crisis and ensuring that the IMF is properly resourced are both firmly in the British national interest.
However, the agreement that the Chancellor signed up to at the weekend fails on all three counts. It will not speed up, but further delay the decisive action we need from European leaders to kick-start growth and empower the European Central Bank to act. If those extra resources were to result in the IMF stepping in to act when the European Central Bank would not, that would risk weakening the IMF as an institution. Furthermore, in those circumstances, allowing eurozone leaders further room for delay and exposing the IMF and British taxpayers’ money when rich eurozone countries will not act would categorically not be in the British national interest.
Members across the House will find it baffling that that is precisely the view that the Chancellor took, just a few weeks and months ago. Following the G20 summit in October, when euro area leaders tried and failed to get international agreement on IMF resources to bail out the euro, he told the House:
“But the IMF contributing money to the eurozone bail-out fund? No. And Britain contributing money to the eurozone bail-out fund? No. That is Britain’s clear position.”—[Hansard, 27 October 2011; Vol. 534, c. 471.]
He went further in February when he told Sky:
“We are prepared to consider IMF resources but only once we see the colour of the eurozone money and we have not seen the colour of the eurozone money”.
Will the Chancellor tell us what has actually changed since then, because we have categorically not seen the colour of the eurozone’s money? The eurozone agreement that was reached last month was widely dismissed as a “sticking plaster” that merged two funds with no new money. As Wolfgang Münchau of the Financial Times stated:
“Ignore the headlines. This is not an increase in the eurozone’s rescue fund”.
In recent weeks, as market doubts have grown about Spain and Italy, market analysts have been clear that the eurozone bail-out fund has nowhere near the resources that it would need to stop a renewed crisis. There is still is no firewall, and the only institution that comfortably has the resources to act—the European Central Bank—is prevented from doing so because rich euro area countries refuse to put sufficient money at risk. So, let me ask the Chancellor this: does he really think that the eurozone’s firewall is sufficient? Is this really the “big bazooka” that the Prime Minister talked about last summer? Does the Chancellor really think that the ECB now has the political backing to act as lender of last resort, and so stop contagion spreading? No, of course he does not. So why is he now signing up to an agreement that will mean that the IMF will be pressured into supporting Italy and Spain because the ECB will not, exposing as meaningless his nonsensical “countries not currencies” slogan?
Is it not the truth that the Chancellor is now conspiring in allowing the IMF to become the de facto central bank of the euro area, putting the resources of UK taxpayers and some of the world’s poorer countries at risk because rich euro area countries will not act? This deal might, for a short period, take the pressure off euro area leaders, but it will be at the cost of delaying a proper solution to the euro crisis, and it will undermine the IMF in the process.
The Chancellor says that his UK critics, on both sides of the House, are “isolated” in the global community in opposing this weekend’s agreement, but the United States has not signed up to give more money either. The US Treasury Secretary said, just this month:
“Europe is a very rich continent and they have the means to solve this on their own…I don’t think it is appropriate for the IMF to take on a larger role. The world needs to see that Europe is working on helping itself first. We are not going to shift our help for them so that the burden is on the American taxpayer”.
Canada is not contributing more money either. This is what the Canadian Finance Minister said about euro area leaders this weekend:
“They need to step up to the plate and overwhelm this issue with their own resources.”
The Chancellor says that we are “out on a limb” on this issue, but with America and Canada there too, that is some limb.
Will the Chancellor tell the House why he chose to tell us on Friday that he was contributing “just under” £10 billion more? With the US not contributing, that is clearly less than the UK’s quota share. Could it be that if he had contributed a fraction more, he would have had to come to the House and ask for parliamentary approval? After the Budget shambles—should I say the “omnishambles”?—of the last few weeks, is not the Chancellor running scared of those on both sides of the House of Commons?
Could the Chancellor also explain what has happened to the UK’s contribution to the IMF through the new agreement to borrow? When an IMF quota was first increased in 2009, it was understood that it would be offset by a reduction in UK exposure to the NAB—the new arrangements to borrow. Let me remind the Chancellor what the Financial Secretary told the House last summer:
“The G20 summit in London agreed on the importance of preserving the IMF status as a quota-based institution…so at the G20 meetings last November, agreement was reached to review the NAB and to reduce it in size once the quota increase was implemented
Official Report, Second Delegated Legislation Committee,
So let me ask the Chancellor this: can he update the House? Has the UK contribution to the IMF been reduced through the NAB as the quota increases, as the Financial Secretary said, or has the Chancellor found a back-door route to increase the net UK contribution by more than £10 billion, without the permission of Parliament?
Finally, Mr Speaker, as for the Chancellor’s claim that the UK has sorted out our problems, unlike the US, the UK is mired with the rest of the euro area in no growth, high unemployment and much more borrowing than was planned, so how out of touch can this deluded Chancellor get? He should have stuck to his guns this weekend. He capitulated. This agreement was bad for the euro area, bad for the IMF, bad for the British taxpayer and bad for the British national interest.
First, I congratulate the shadow Chancellor on running the London marathon yesterday and raising money for good causes, but his arguments are a bit like his marathon legs—wobbly and about to collapse. His response started so well. In the first 30 seconds, he said he supported increased resources for the IMF and supported Britain’s contribution to it, but spent the next 10 minutes telling us why he was against those things. He was in favour of the loan before he was against it. I have to say it smacks of the political opportunism and empty opposition that has been the hallmark of his shadow chancellorship.
People in Washington this weekend who know the shadow Chancellor, because he used to help represent Britain at the IMF, were completely astonished by his opposition to the IMF deal. They wondered whether he was the same person who was in the Treasury for all those years and who wrote all those speeches for Mr Brown about the importance of the IMF and of the international architecture being part of global solutions. Is it the same shadow Chancellor who said in November that
He was asked in an interview why he opposed the Government’s decision and he said:
“I support an increase in resources to the IMF”.
Then, the interviewer said:
“Sorry? I thought you didn’t.”
“No…I support an increase in resources for the IMF”.
One is led to the conclusion that only political opportunism is driving the shadow Chancellor to the position he takes.
The right hon. Gentleman asked just a couple of specific questions. I think I answered all of them in the statement, which he should have listened to before he asked his questions. The US Treasury Secretary went out of his way to welcome the deal, but pointed out that the US had not made a loan at the London G20 summit and did not do so again because of the swap lines. Since we talked about this in the autumn, the European Central Bank has provided $1 trillion of liquidity support and €200 billion extra to the firewall, but I completely agree that euro countries need to do more to ensure reforms in their own economies.
Is the right hon. Gentleman really saying that, when a request is made for the countries of the world to come together at the IMF to provide increased contributions, Britain should stand apart from it? He represents a Labour party that stands, or used to stand, for internationalism and for the institutions of the world coming together. Now he has led the party down a complete blind alleyway. He even voted against the highlight of the Labour Government—the deal done at the London G20 summit. This is what the shadow Chancellor has done to his party—left it in no man’s land, not taken seriously at home and not taken seriously abroad. If he were ever in charge, we would be getting a bail-out from the IMF, not giving it a loan.
I had rather changed my mind about asking a question because of the extremely unappealing way in which the shadow Chancellor put his case; but in order to be consistent with everything that I said in October and November, I am bound to say now that I regard it as the prime duty of Germany to solve the European problem, and that I hope that this further support from the IMF will not weaken the pressure on the German Government to do exactly that.
Germany made a $55 billion dollar contribution to the IMF this weekend, which is a much greater contribution than the $15 billion that we are putting in, and it is the principal contributor to the various eurozone bail-out funds of which we are no longer part. However, I agree with the spirit of what my right hon. Friend is saying, which is that Germany needs to stand behind its currency. That is indeed a very important part of solving this problem.
I think it right for us to support the IMF, but is not something very wrong when it is having to pass the hat around because it is becoming increasingly concerned that the policies being pursued by the eurozone—and, within it, some of the most developed and well-off countries in the world—are making it more likely that those countries will have to draw on international help to sort themselves out? Would it not be far better if the eurozone countries accepted that until they clean up their banking system once and for all, and until they recognise that the austerity policies that they are imposing on the peripheral countries simply will not work—and there are very few people around now who think that they will work—there remains a greater risk that these funds will have to be called upon? It seems to me that, while it is all very well to have a rescue fund, it would be far better to deal with the root causes of the problem.
I welcome the right hon. Gentleman’s support for the decision to provide extra resources for the IMF. He was Chancellor of the Exchequer in 2009, when we last made a contribution to it, and, as I said a moment ago, I think that that was one of the highlights—if not the highlight—of the last Labour Government.
The eurozone countries on the periphery are being asked to walk an incredibly difficult path. That is the consequence of being in a monetary union in which it is impossible to devalue. However, it is clear that Ireland, which has had to make some incredibly difficult decisions and take some very tough fiscal measures, is becoming dramatically more competitive—its current account is back in surplus, and its exports are increasing—so it is possible to walk that path.
I certainly agree with the right hon. Gentleman that further action is required on the banking systems in Europe. A European directive which is currently being debated transponds the Basel agreement into European law, and we are keen for it not to be watered down so that it is not used to disguise problems in the European banking system.
Is not the lesson of the 1930s that the leading economic powers must stick together and support the global financial and trading system, and is that not exactly what the IMF decision is doing now? What we need is a strong and independent IMF. With that in mind, will the Chancellor tell us what discussions he has had with non-eurozone IMF members to ensure that the IMF sees off any special pleading from the eurozone?
This weekend, plenty of countries, including the UK, made very clear that a contribution to additional IMF resources must come with strict IMF conditionality. They made clear that there could be no special favours for eurozone countries that needed support, and that there was no question of creating some special eurozone fund for IMF resources. Any contribution from the IMF’s shareholders must go into general resources which could be used for eurozone countries or, indeed, for any other country that needed help.
It is worth remembering that there are 53 IMF programmes, three for eurozone countries and 50 for other countries in the world, and that two of the largest programmes are for Poland and Mexico, which are not members of the IMF.
No, I do not accept that. For the IMF to walk away from the enormous problems that we all know exist in the eurozone would be a betrayal of why we and other countries created the IMF: to be there to help countries, including groups of countries, that get themselves into trouble. The IMF also provides advice and conditionality along with its loans. Having set up an institution to deal with global economic problems, it would be bizarre if, when some of the largest economic problems the world has ever known arise, we were to say that the IMF is not going to help.
The central unifying purpose of this coalition Government is to bring stability and credibility to the management of the United Kingdom’s economy and public finances. That, in turn, enables us to play a constructive role on the world stage. Does my right hon. Friend agree that, just as it is in the Swedish, Swiss, Australian, South Korean and Japanese national interest to give extra contributions to the IMF, it is in the British interest not just to help the eurozone, but to lend assistance wherever the IMF team’s assistance is required?
I agree with my hon. Friend. The coalition Government have taken very difficult decisions in order to make sure that our public finances are back under control, and we are seen by the world to be dealing with our debt crisis. After spring meetings in Washington at which countries not in the EU, including Australia, Japan, South Korea, Norway and Switzerland, all agreed to contribute to increased IMF resources, it would be truly bizarre if a British Chancellor were to come to the House today and announce that Britain is not contributing. [Interruption.] What did the shadow Chancellor say? [Interruption.] What? [Interruption.] What? The truth is that a Chancellor who came here and said he was not taking part when all those other countries, some of them on the other side of the world, were taking part, would have absolutely no credibility abroad.
I do not want to speculate about any future programmes that might, or might not, be required. What I want to do is make sure that the IMF is able to deal with whatever is thrown at it. That is massively in Britain’s national interest. We are talking about the source of 40% of the exports made by the businesses and factories of the constituencies we represent. For us to walk away from that at the moment would be bizarre. Does the eurozone need to do more? Yes, it does need to do more. For instance, as the former Chancellor, Mr Darling, said, it needs to sort out the problems in its banking system, and it needs to make sure that the programmes that countries have been asked to embark upon are deliverable, but that is not an excuse for Britain not to take part in a global effort to support the IMF.
I suspect that on this occasion Members on both sides of the House will have found the shadow Chancellor’s remarks to have been profoundly unconvincing. Does the Chancellor agree that the purpose of these funds is to assist in the restoration of the eurozone economy, the recovery of which is profoundly in our own interests? Does he also agree that the IMF must use all the powers at its disposal to ensure a rigorous application of its rules to those eurozone countries that are in trouble, in order to ensure that the mistakes that were made when the single currency was first formed are not repeated?
I completely agree with the former Foreign Secretary. The agreement at the weekend is about ensuring that the IMF is fully resourced to deal with whatever is thrown at it. Of course, if problems were to emerge and future programmes were to be required, there would be an enormous amount of scrutiny of what those programmes would consist of, what the conditions would be, and the like, but what we would not want at such a time, when the markets would no doubt be incredibly febrile and when confidence in Britain and other countries would be evaporating, is a question mark hanging over whether the IMF has got the money to solve the problem. That is why countries from around the world have decided to make this contribution.
Does not the Chancellor realise that he would have a much stronger case on loans to the IMF if he was not practising austerity here in Britain and calling on all families to pay for the bankers? Does not he recall that when the IMF was set up we had a Labour Government who introduced a national health service, built a welfare state, built education for all and left us with fewer than 500,000 people unemployed? That Government went for growth, and that is the kind of policy he should be going for here, instead of calling for austerity for everybody else.
What I say is that the hon. Gentleman is betraying the spirit of Ernest Bevin, Hugh Dalton, Clement Attlee and the members of that Government, who came together after the second world war to build new international institutions to make sure that, in future, the world would come together to sort out its economic problems, instead of walking away from other countries, which is what we would be doing if we followed the hon. Gentleman’s advice.
“the IMF contributing money to the eurozone bail-out fund? No. And Britain contributing money to the eurozone bail-out fund? No. That is Britain’s clear position.”—[Hansard, 27 October 2011; Vol. 534, c. 471.]
Has he changed his mind or was he playing with words?
I have not changed my mind at all. That is exactly what I said today; we are not contributing to the eurozone bail-out funds, including the European financial stabilisation mechanism, which was the thing that the previous Labour Government signed us up to. We are not part of those eurozone bail-out funds. We are not contributing money to the IMF that can be put into those bail-out funds—that is something we have also insisted on. And in the communiqué it is absolutely clear that the IMF is not allowed to create some special bail-out fund uniquely for the euro. This money goes into the general resources of the IMF to be used for countries, not for currencies.
Could the Chancellor please explain to the House and to his largely absent Lib Dem coalition partners—I say that for the record—why the amount chosen for the IMF is, by some extraordinary coincidence, just below the level required for a parliamentary vote? He has bandied around the words "political opportunism", but is he not himself being a political opportunist?
Given that I agree with the Chancellor that IMF money should not be used to bail out a currency, will he urge the IMF to make sure that loans are made available to European countries only when they are in a position to devalue or when they are withdrawing from the single currency? Otherwise, as with the sterling area, surely the responsibility rests with the governing authorities and the central bank of the euro to make the money, the loans, the subsidies available.
I do not agree with my right hon. Friend on this point, because if the IMF said it was never going to support a loan or undertake a programme with a eurozone country, it would, first, be walking away from one of the largest economic areas in the world. Secondly, all those eurozone countries would presumably then cease to be members of the IMF, because there would be no interest in it for them. So France, Germany and other countries would then withdraw from the IMF, and I do not think that that is what we want to see happen in the IMF. The IMF needs to support all countries that get into difficulty, provided the conditions are met and the rigour is applied to those programmes.
The IMF was designed for a world of separate national currencies with exchange controls and properly managed national economies. Is it not time to look again at re-creating that sensible world, because it actually worked, starting with the re-creation of national currencies in Europe?
The hon. Gentleman has, for all the time I have been in the House, consistently argued against British membership of the euro and consistently raised questions about the viability of the euro. I completely respect him for that, but to say that the IMF cannot get involved in the eurozone’s problems would be just a remarkable abnegation of the IMF’s commitment to deal with the world’s economic problems. The eurozone is at the centre of the world’s current economic problems because those involved have not been able to convince the markets that they can deal with their debts in the way that we have been able to. So I do not think it would be sensible for the IMF to just say, “There is a very important part of the world, which is at the epicentre of the world’s economic problems, but we are not going to get involved there.”
I entirely support the Chancellor’s contention that the interests of the City of London and the UK’s financial services industry are best served by unequivocal backing for the IMF at this time. Will he now pledge that by the time of the Whitsun recess he will have come to this House to make a statement on the Government’s strategic policy towards our relationship with the eurozone?
I thank my hon. Friend for his support, which is very welcome. As the representative in this Parliament of Europe’s largest financial centre, he completely understands our huge national interest in a stable world economy and in institutions that can try to bring stability to that world. I will give thought to his suggestion of a statement on the broader eurozone problems and will come back to him.
I thank the Chancellor for his statement and for allowing me early sight of it, and I agree with his welcome for the European Central Bank’s commencement of the long-term liquidity operation. There are concerns about the size of the firewall and, still, about the scale of support being offered by the ECB, but notwithstanding that and irrespective of the final balance of support to the euro from the ECB and to individual countries from the IMF, will he continue to agree that the best hope we all have for an export-led recovery is a strong, stable and growing eurozone economy with no threat to that currency?
I find myself in agreement with the hon. Gentleman who speaks for the Scottish National party. One of the consequences of what has happened over the past year or two in the eurozone is that countries that want to join the eurozone now need to ante-up a huge sum of money into the bail-out fund. No doubt that is something he will be explaining to Scottish voters as we discuss whether Scotland should ditch the pound and join the euro.
Yes, I can. IMF loans are repaid and they always have been in the past. No country has lost money giving resources to the IMF and such loans are repaid with interest. Indeed, if I can find the quotation—[ Interruption. ] It is worth waiting for, because it is from the shadow Chancellor. When the shadow Chancellor was in the Treasury, he said that IMF lending to
“countries is invariably repaid with interest.”
That is what he said in 2003. I can give my hon. Friend the assurance that loans to the IMF are made to the most creditworthy institution in the world and are repaid.
The 2010 quota agreement has not come into effect because it has not been ratified by all the countries. Our bilateral loan will be made only once that quota deal has been ratified. I have listened to the hon. Gentleman for the 11 years for which I have been a Member of Parliament and I cannot believe that he really supports the decision being pursued by the shadow Chancellor. The hon. Gentleman knows from his time at the Treasury and from his broader experience that Britain has a vital interest in economic multilateralism and the institutions that support a more stable economy.
To be fair, probably most Labour MPs, in their quieter moments, support the IMF and think it is perfectly sensible that, when other countries add their resources, Britain should do so. The most remarkable thing is that the shadow Chancellor led the Labour party into voting against the implementation of the London G20 deal. Because of the change of Government, we introduced the statutory instrument that gave effect to the London G20 deal, yet the shadow Chancellor led the Opposition against it.
Notwithstanding the mandate the Chancellor already has, would not our voters expect a separate vote on this loan in this House, so that all Members can take a view? The Leader of the House, who is sitting next to the Chancellor, is shaking his head; he knows perfectly well that he is going to prorogue Parliament a full week early. Members have plenty of time to stay here and vote on the matter. Is it not more important that we vote?
The Economist has rightly observed that the eurozone’s big problem is not a dearth of resources to the IMF, but the institutionalised paralysis of eurozone countries. Can the Chancellor tell the House what discussions he had at the spring meetings about the need for practical steps to break that paralysis?
My hon. Friend is completely right that providing additional resources to the IMF will not solve the eurozone’s problems, I said that in my statement. It is about making sure that the IMF is prepared for whatever is coming down the track—prepared for the worst, rather than just hoping for the best, and of course we do all hope that things improve. My hon. Friend is also right that the eurozone countries need to work more closely together in terms of the fiscal integration of their policies. That is one of the reasons why I did not want Britain to join the euro and would never want Britain to join the euro. The logic of a single currency is that devaluation is not possible and different inflation rates cannot be manufactured in different countries.
The end result is the transfer of large sums of money from German taxpayers to Spanish taxpayers. That is their decision by being part of the currency; our decision is to make sure that the world is ready in case that does not come about.
One of the communiqués following the summit referred to the need to pursue solutions for malnutrition and food insecurity, as well as fragile states. I support the loan for those purposes, but how can we be sure that the money will end up supporting countries such as Yemen, which has just been through a presidential election and desperately needs support from the IMF and the World Bank?
The right hon. Gentleman is quite right to draw attention to the fact that, although we have been talking a lot about the eurozone, the IMF does a great deal of important work in low-income countries. As I said, there are 53 programmes, of which only three—albeit they are very large ones—are in the eurozone. At the IMF I specifically intervened to ask that the IMF’s windfall profits from recent gold sales be used to reduce the interest costs for low-income countries that undertake IMF programmes, to make sure that they have access to the increase in resources we are talking about today.
We are not pouring money into some eurozone bail-out fund. We are providing a loan to the International Monetary Fund. I hear what my hon. Friend says about the decision, but every single previous Government have been part of increases in IMF resources—in 1983 and in 1990, under Lady Thatcher’s Government, we contributed to increases in IMF resources. He says that these countries are lost causes, but in Portugal, where very difficult decisions have been taken, exports are up by 7% and the current account deficit has been reduced; Ireland has gone into a current account surplus and Spanish exports are up. Of course they are having to make the adjustments in a brutal way, by real cuts in wages rather than a currency devaluation, but that is the consequence of being in a single currency. The Governments in those countries, with, in most cases, the support of the public now, are taking those difficult decisions. It is interesting that even in Greece, which is probably the most traumatically affected of those countries, there is a clear and overwhelming public majority for Greece staying in the euro.
The Chancellor claimed that the additional contribution that this country is making is proportionate to our shareholding. Can he explain why we are paying $15 billion, whereas France is paying $40 billion, Germany $55 billion and Japan $60 billion, and South Korea, with a smaller population and a smaller economy than ours, is paying the same as we are?
I am not sure if that is a request for more money to the IMF. As I made clear in the statement, the non-euro countries felt it was appropriate that the euro countries made a proportionately bigger contribution. That is why France, for example, has given $40 billion. In the past, because Britain has exactly the same quota shareholding as France, we would have given the same. We have not. Our $15 billion is almost exactly the same as the $15 billion loan made at the London G20 summit. I think it is proportionate to the eurozone effort. I cannot believe that the hon. Gentleman, as a former Chair of the Foreign Affairs Committee, really supports the shadow Chancellor’s position of opposing Britain being part of a global deal to increase IMF resources.
I am sure the Chancellor will agree that until the core cause of the crisis is solved or at least approached—that being a lack of competitiveness—additional borrowing in a crisis caused by excessive borrowing already is simply reinforcing failure. Is the Chancellor at all concerned that for the 50 nations that he mentioned, devaluation was always an option—an option that has always been available to IMF rescue packages, but is not available to countries inside the eurozone?
My hon. Friend is right that countries in the eurozone do not have the option of devaluation if they want to remain in the eurozone. That is the logic of the single currency. That is why the Foreign Secretary, when he was leader of our party, said that it was
“a burning building with no exits”.
In that situation the question for Britain, rather than for members of the eurozone, is what do we do. What we can do is make sure that the global institutions that try to protect the world from instability, that try to provide shock absorbers for what happens in different countries, including in the eurozone, are well resourced to deal with whatever is thrown at them. I say to my hon. Friend and to Members across the House that it is possible to be very, very Eurosceptic and at the same time to be a believer in the international institutions that Britain helped to create 60 years ago.
The communiqué that was issued by the Finance Ministers and the European Central Bank governors said explicitly, with reference to the $430 billion that was provided by the countries at the meeting:
“These resources will be available for the whole membership of the IMF, and not earmarked for any particular region.”
But is not the IMF in danger of sleight of hand? On the one hand the IMF claims not to bail out currencies, yet on the other hand it offers bilateral loans to countries in the eurozone that are failing because of the eurozone currency. Is that not an indirect loan from the IMF?
I would say, first, that the reason why these countries have the problems that they do is often because of their domestic difficulties. Portugal has been fundamentally uncompetitive for a decade. Ireland had a massive banking system that collapsed. Italy and Spain have not done enough to keep up with the competitiveness of Germany. They are addressing domestic problems. That is made more difficult because they cannot devalue their currency, but that is not the origin of their problems.
In 2010, there was an agreement to change the quota of the IMF to give the new emerging economies of the world, such as China, India and the like, a greater say at the IMF. The quota was reallocated to reflect the new economic weights in the world. That deal has not yet been ratified, but we as a country have ratified that deal. We are one of the countries that have ratified it. There remain some countries that have not. Our loan is available only when the quota deal has been ratified by the required majority of those countries.
Order. There is still extensive interest in the subject, which I am keen to accommodate, but if I am to do so, brevity is of the essence.
When one’s friends are trapped in a burning building, is not the kindest thing to do to lead them in the direction of the exits in an orderly way, rather than give them billions to stay exactly where they are?
The IMF should be plan B, plan A should be the European Central Bank. Does the Chancellor not accept that until the ECB properly backs the euro, the only people who will welcome more money coming in through the IMF are the traders who are making much money by picking off the peripheral countries around Europe as they go from one to the other?
Since December, the ECB has provided €1 trillion in its long-term repo operation, so it has provided a lot of support, most of which has been used by some of the eurozone banks to stop them falling over. The ECB has taken action, but the Prime Minister, myself and other members of the Government have in public, as well as in private—but in public—over the last six months, urged the ECB to do more; urged that greater fiscal transfers take place. On many of those things the ECB has made a lot of progress since the autumn. There is a much bigger eurozone firewall. As I say, the ECB, which was not in the game at all last autumn, has now provided €1 trillion of liquidity, so it has made those contributions, and therefore the rest of the world, as well as the UK, thought it appropriate that we should make sure that the IMF is well resourced.
My right hon. Friend rightly says that a well funded IMF and a bigger eurozone bail-out fund cannot be the whole solution to the eurozone crisis. Does he believe now that the overriding priority must be steps towards debt mutualisation and the structural reforms to address the underlying competitiveness issues that are at the heart of the crisis?
I absolutely believe that eurozone countries need structural reforms. This country needs structural reforms. The things that we have proposed to Parliament on welfare, education, planning and the like, are all part of reforms to make our country more competitive. We have not been talking about our economy here, but we came into government with the highest budget deficit of the lot and some real competitiveness problems. On mutualised debt, over a year ago, I said that I thought that the logic led the eurozone towards euro bonds. I have put that on the record, but ultimately that is a decision for the eurozone.
We are going to honour that 0.7%. That is in the aid budget. It is in the budget of the Department for International Development. We can talk about the merits of legislation, but we do not need a piece of legislation. The proof is whether the money is being provided, and this Government are providing the money. I for one am proud that we will be the first Government in British history to hit the 0.7% of international aid.
The rate of interest would be set at the time the IMF called upon the loan, if it were to do so. It is only a contingent loan that will be available if the IMF needs it. The mechanism for setting the rate of interest for the IMF is well known. As I have said, countries do not lose money when they lend to the IMF—that is certainly Britain’s experience and that of other countries. Thanks to the actions the Government have taken, we are borrowing money at what is pretty much the lowest rate that anyone doing my job has ever borrowed money.
If the rich EU countries that created the euro will not accept the risks associated with it, what is the moral case for saying that Britain and a host of other poorer countries should bail it out?
As I have explained, we are providing resources to the IMF. It was the previous Government, of whom the hon. Gentleman was a member, who committed the British taxpayer to the eurozone bail-out funds, which we had to get this country out of. I will take comments from my colleagues on the problems with the euro, but it is a bit rich coming from loyal Labour Members who supported Labour’s official policy of taking Britain into the euro.
I support my right hon. Friend’s commitment to that great institution, the IMF, and share his concern about what is happening to our largest export partner, but may I urge him to use the powerful position we have in the IMF, which is underpinned by this latest money, to ensure that there is a realistic examination of whether it is possible to save the southern European members without devaluation?
I welcome my hon. Friend’s support for this decision. IMF programmes should be very rigorous and there should be plenty of conditionality. As I have said, it is possible to undertake very difficult internal devaluations, as opposed to external devaluations—that is a consequence of remaining in a currency zone—and the IMF will help those countries through that.
First, will the Chancellor withdraw the outrageous slur that all Labour Back Benchers were in favour of Britain joining the euro? Secondly, surely his distinction between currencies and countries is mere sophistry. The reality is that this is about bailing out countries whose difficulties have been caused, or at least exacerbated, by being in the euro. When does he expect to have to bail out the eurozone again? When will the eurozone’s next request for money come?
I talked about loyal Labour Back Benchers and would never apply such an outrageous slur to the hon. Gentleman, whereas it is certainly applicable to Steve McCabe. The distinction is not sophistry, because an IMF contribution, were there ever to be one, to a eurozone bail-out fund, would basically put that money into a eurozone pot and then the eurozone would decide how it was spent. If there is a country programme for a specific country in the eurozone, the IMF team would turn up, wherever it happens to be, impose its own conditions and do its own analysis, and that is fundamentally different. The logic of the hon. Gentleman’s question is that the IMF would never help a eurozone country, which would lead to the eurozone countries leaving the IMF, and we would then be fundamentally undermining one of the most important institutions the world has seen in the past 60 years.
The European Central Bank is of course a very important part of the equation, but one of the problems facing Ireland, Portugal and, indeed, Greece was that they were also shut out of international debt markets, and when countries are shut out of international debt markets they usually—almost always—turn to the IMF for assistance, so it would be very odd if the IMF were not there to help them.
I am glad that the Chancellor has realised—it has taken him four years to do so—that there was a world economic crisis which started outside this country. Yes, Labour in government in the past has supported the IMF, and we still do, as we know that we have to do something to help Europe, but, following what my hon. Friend Mr Skinner said, I must ask why are the British people paying for it through one of the most punitive Budgets ever levied? On the one hand they understand that we have to help Europe, but on the other we have one of the most punitive Budgets that has ever been levied on the British people.
I have never denied that there was an international economic crisis; what I said was that those problems were not visited upon Britain from abroad. Britain was at the epicentre of the crisis, with the biggest bank bail-outs, the most indebted households, the most over-leveraged banks and one of the largest deficits going into the crisis. That is what I complain about, and I complain in particular about the man who was responsible for most of those economic policies giving us lectures on them afterwards. I welcome the fact that Mr Cunningham supports the IMF and an increase in its resources, but the money does not come out of the public spending cuts that we have had to make in order to deal with that mess; it comes out of our foreign exchange reserves. We are exchanging one asset for another, and as I have said, every country that has lent money to the IMF has got its money back.
Happy St George’s day, Mr Speaker.
I very much welcome the fact that the loan will be returned with interest, but does my right hon. Friend hope, as I do, that those interest payments are not returned at the expense of countries such as Greece racking up yet more debt?
IMF loans are made with conditions, and one condition is interest, although there is a specific programme to help very low-income countries to cope with the interest costs. It is very important, as part of any IMF analysis, that we undertake proper debt analysis, and the IMF has been pretty instrumental in driving through the private sector creditor write-offs that have happened in Greece in order to improve debt sustainability, something which—I do not think it is any secret—many eurozone countries were not particularly in favour of. The IMF can therefore take action to improve debt sustainability.
I said very clearly in my statement that the principal reason the world economy is unstable is the problems in the eurozone, and, as all the questions have demonstrated, there is of course a connection between those problems and the need to have a well resourced IMF, but, as I said last autumn, we are not prepared to see IMF resource going into eurozone bail-out funds. It needs to be for individual countries and for individual country programmes, and that is a view which not just I or Britain happens to have, but which Japan, South Korea, Australia and European countries that are not in the European Union, such as Norway and Switzerland, share. Ask yourself the question, Mr Speaker, and the House can ask itself, too: why have all those other countries thought it is in their interests to help to deal with a problem that is actually on Britain’s doorstep as well?
The exporters of west Suffolk, like people in every other part of the country, have an enormous interest in there being greater stability in the eurozone and in the world economy. What has been so damaging in the past six months has been the flight of confidence from those countries, and its impact on exporters in Britain and elsewhere in the world. We want confidence to return. As I said in the statement, there was a sense in the spring meetings that things were a little better than before Christmas. However, the risks are real and they remain.
In his statement, the Chancellor told the House that the £10 billion contribution to the IMF would not affect spending by UK Departments. Why, therefore, is the Chief Secretary reported to be asking Departments to identify £16 billion more in savings to pay for “unforeseen” events? Is that for a eurozone bail-out contingency fund?
No it is not, and there is no connection between the two matters. An IMF loan comes out of our foreign exchange reserves. That has been the case under Labour Governments, Conservative Governments and this coalition Government. It is a contingent loan that will be drawn upon if the IMF needs resources. We swap our foreign exchange asset for the IMF loan. The Chief Secretary said what he did today because we are trying to get a grip on the public finances. To do that, we have to ensure that Departments can deal with their own contingencies, as and when they arrive.
We all know that what we are discussing is state-sponsored money laundering to prop up the failed and doomed European project called the euro. The deal does not come without a heavy human cost. In southern Europe, it means the imposition of a net tightening of 3% per year, yet there is no monetary stimulus to offset that, no demand for growth in the rest of Europe and no demand for structural reforms. Why is the Chancellor throwing the good money of UK taxpayers after bad for this economic madness?
This money comes out of Britain’s foreign exchange reserves and is swapped for an IMF loan. It is therefore not money that we would otherwise spend on public services or use to cut taxes. My hon. Friend is being a little unfair to the countries that are having to undertake difficult structural reforms. For example, Spain has recently passed significant reforms to its labour laws to make its employment market more flexible and Italy has made difficult pension reforms. People will remember the scenes in Italy when those reforms were announced a few months ago. Britain is also having to make difficult reforms and take difficult decisions to make our economy more competitive and to deal with the problems in our public finances.
There is not much danger of my being influenced by the shadow Chancellor’s flip-flopping. My hon. Friend draws to our attention the interesting point that the Australian Liberal party, which is hardly the most Europhile party in the world, understands that Australia has obligations to the international community and to the IMF. Given that Australia is prepared to make a contribution, it would be quite odd if Britain was not.
I voted for the loan and believe that it would have been bizarre had the Chancellor not offered a loan of the level agreed to by Parliament. Will my right hon. Friend guarantee that he will come back to this place and ask for Parliament’s assent should more funds be asked for?
I can do that on the simple grounds that I would not be able to make a loan beyond the agreed headroom without a vote in Parliament. Perhaps by then the shadow Chancellor will have flip-flopped again and will support it. [ Interruption. ] I shall be very generous and congratulate the shadow Chancellor on completing the marathon and raising all that money. I advise him not to wear flip-flops when he runs.
May I ask for clarification of the terms of the loan? The Chancellor referred in his statement to $15 billion and under £10 million, but the currency being utilised is special drawing rights at £1 to the special drawing right. Should the currency fluctuate and push the loan over £10 billion, will the Chancellor come back to Parliament and give us a vote on it?
I realise that mind reading is not among my right hon. Friend the Chancellor’s talents, but does he think that as the shadow Chancellor did his gallant marathon yesterday, he suddenly had a Saul-on-the-road-to-Damascus moment and thought, “Ah, the organisation that I have supported for so long, the IMF, now has enough money, so I don’t agree with increasing its resources”, or does my right hon. Friend think, as I do, that the shadow Chancellor’s act is one of blatant, naked political opportunism that should be condemned?
I do think it is an act of political opportunism. As I have said, there was complete astonishment at the IMF when I said that the Opposition would probably oppose what I was doing. The people there all know the shadow Chancellor, because he negotiated on behalf of the Treasury as Britain’s representative at the IMF, so they find his decision very difficult to understand.
I thank my hon. Friend for his support. He is absolutely right, and while I was sitting in the IMF meeting on Friday and on Saturday morning, my mind wandered to thinking about what would have happened if I had turned up and said that we were abandoning our fiscal consolidation plan. I came to the conclusion that we would have been the subject of the meeting’s discussion rather than the problems in the eurozone.
Yes, I can confirm for my hon. Friend’s constituents in Suffolk and for people around the country that an IMF loan does not add to the debt or the deficit.
We have to ask ourselves why, when people analyse the British economy, they do not add an IMF loan to the debt or deficit. It is because they understand that it is a loan that is paid back with interest and an asset that is exchanged for some of our foreign exchange reserves, not a call on public spending.
I support the Chancellor’s decision, because Britain should play its part in supporting the IMF and helping to stabilise the world economy. I particularly welcome what he said about supporting countries rather than currencies, but what advice should the IMF give to a country that applies for support but whose problems are largely caused by an unsustainably high exchange rate?
I thank my hon. Friend for his support, which is very welcome. The problems of the countries that we are talking about lie in their lack of competitiveness, or in the case of Ireland in its banking system. The problems that they are trying to deal with have been exacerbated by the fact that they are part of a currency union and cannot devalue, although without getting into a lengthy debate I have to say that exit from the single currency would also bring them a whole set of problems. We are very clear that an IMF programme would come with robust conditions, real analysis of debt sustainability and real recommendations on structural reforms to make those economies more competitive.
Does my hon. Friend remember the warnings that many gave prior to the creation of the euro that without large regional subventions, the project would fail? Although he is correct in asserting that “I told you so” is not a policy, it is, sadly, increasingly a fact. He has acknowledged that Germany is doing more, but does he agree that it needs to do still more before eurozone countries have recourse to the IMF?
I certainly agree that Germany and other countries need to live with the consequences of the euro, and the German taxpayer is now having to provide many hundreds of billions of euros to various funds.
My hon. Friend is right that many Conservative Members warned of the consequences of Britain joining the euro. I remember helping the then Leader of the Opposition write a speech that he delivered at Fontainebleau, which was immediately parodied by the then Government, led by Tony Blair, and the then Chancellor, Mr Brown, as deeply irresponsible. The then Conservative leader spelled out in that speech a lot of the consequences that have come to pass.
Harold Wilson famously said that a week is a long time in politics, so does my right hon. Friend agree, having seen the shadow Chancellor’s performance—he first supported decent funding for the IMF and then quickly appeared to criticise it—that it now appears that Labour’s Treasury team’s dictum is that a minute is a long time in politics?
Unfortunately, the shadow Chancellor has not, in the 18 months that he has been doing that job, set out any kind of consistent and principle-based opposition to the Government. It is all over the place, and has ended up with the Labour party voting against an increase in IMF resources. If we asked people for one of the achievements of the three-year Brown Government, they would probably say, “The London G20 summit was about the only one,” and that was all about increasing IMF resources. The position that the shadow Chancellor has led the Labour into is a remarkable one.
My constituents have legitimate concerns whenever large amounts of money are placed in international institutions. Will the Chancellor therefore confirm that the money Britain has loaned to the IMF can be used globally and not necessarily in the eurozone, and that the IMF will use its normal, stringent mechanisms for ensuring that the money is spent wisely?
I can tell my hon. Friend that his west midlands constituents will not have to pay any more taxes for the loan and will see no cuts in public services as a result of it. The money comes out of the foreign exchange reserves—the foreign currencies that Britain holds and always has held. I would also say to the people of the west midlands and elsewhere that the money is available for all countries in the world that get themselves into difficulties. They have to meet certain conditions—very tough conditions—before they get access to the money, but if the world did not have a global institution such as the IMF, we would be in a much worse place. All the manufacturers and exporters in the west midlands understand that problems in the world economy and our export markets come back to bite us very quickly indeed.
No we have not failed to get our money back from the IMF. Britain was one of the creators of the IMF, because we understood after the 1930s that if countries just walk away from problems in the world economy, the problem is very much worse. In the north-east, we have manufacturers such as Nissan in Sunderland. Nissan is making a big new investment in the UK. It is doing so, in the end, because it has faith that the world economy will be a more stable place, one of the reasons being that we have strong institutions such as the IMF.
Had other IMF quota members followed the advice of the shadow Chancellor and effectively walked on by, leaving European countries to fend for themselves, what would have been the effect on the UK economy in terms of jobs and money, and what would have been the effect on the economies of developing countries?
If the world were unable to provide the IMF with the resources it needed, people would see that the world was not able to act as a whole to deal with world problems. By the way, I happen to believe that there is no prospect that the shadow Chancellor would have taken a different decision from the one I have taken if he were doing my job. He takes the position he does simply because he is sitting on the Opposition Benches.
I do not think that any Chancellor since the creation of the IMF would have taken a different decision. In the end, all parties—at least, until today—have recognised that the IMF is an incredibly important institution for the stability of the global economy. If was created under a Labour Government, and it would be pretty remarkable if a Labour Chancellor were to try to pull the plug on Britain’s participation in it.
Will my right hon. Friend assure my constituents that there will be no impact on the increased spending on our schools and hospitals that the coalition Government are providing, and no impact on cutting taxes for more than 40,000 Harlow residents through raising the income tax threshold?
I can absolutely assure the people of Harlow that we will deliver a big increase in their personal tax-free allowance, continue with real increases in the health service, support their schools and, above all, get their economy moving after the disastrous mess that the previous Labour Government put us in.