As always, it is a great pleasure to follow Jacob Rees-Mogg. On behalf of the Opposition, I, too, would like to thank all right hon. and hon. Members who have taken part in today’s and last week’s debates on the Bill.
The Opposition support the Bill, as my right hon. Friend the shadow Foreign Secretary and I set out on Second Reading. Indeed, there seems to be a worrying level of harmony between those on the Opposition Front Bench, the Government Front Bench and the Liberal Democrat Benches. It even extends to the hon. Member for North East Somerset, to whom I say, in French, c’est un plaisir. To return the compliment, it is a pleasure to be in agreement with him. That agreement, however, does not extend to all of the Conservative party’s Back Benchers. As ever, there is some disagreement between those on the Treasury Bench and Conservative Back Benchers, but let us not dwell on that.
The Bill does not deal with the substance of the eurozone’s new bail-out fund, the European stability mechanism; it deals only with the treaty change required to allow for its establishment. To make our position clear, we do not believe that the UK should stand in the way of the eurozone setting up a fund that will be financed by the eurozone, operated by the eurozone and used by eurozone countries should they need that support. We believe that the eurozone must be allowed to take responsibility for this new, permanent bail-out fund.
Forty per cent. of British exports go to the eurozone, and many British businesses rely on the wider consumer market of 500 million people offered by the European Union. We therefore support immediate and decisive action by the eurozone to stabilise the single currency, because we believe that that stability is firmly in the UK’s national interest. The European stability mechanism is one necessary element of that decisive action. For too long there has been an absence of concrete action by eurozone leaders. Political inaction has, unfortunately, become the norm. As the eurozone’s problems developed, that inaction only served to deepen the crisis.
As many commentators have noted recently, had the European Central Bank announced its support for the eurozone two years ago and used the unequivocal terms that we have heard recently from Mario Draghi, who said that the ECB would provide a fully effective backstop for the currency, it is possible that the crisis would not have reached this stage and that it would be nearing its end.
As the OECD stated last week,
“weakness in the periphery is spilling over to the core.”
It continued that
“further policy action is needed to instil more confidence in the monetary union.”
Although the ESM is certainly not a silver bullet to solve the eurozone crisis, its establishment is definitely part of the solution and is exactly the type of action that the OECD has called for.
Speculation on the future of the euro and uncertainty about the political will of eurozone leaders to save the currency have driven instability in Europe’s financial markets. Without that essential market confidence in the eurozone’s readiness to protect its weaker members, borrowing costs for countries on the periphery have rocketed. Coupled with the weak and under-capitalised banking systems of certain countries in the eurozone, that has led to a vicious circle of financial instability.
The OECD has emphasised that:
“Solvency fears for banks and their sovereigns are feeding on each other.”
It also stated:
“Concerns about the possibility of exit from the euro area are pushing up yields, which in turn reinforces break-up fears. It is crucial to stem these exit fears.”
It is clear that as banking systems have become increasingly weakened, pressure has grown on sovereigns, and that as the financial uncertainty has grown, the cost of sovereign borrowing has risen, which has raised borrowing costs for businesses and individuals. As economic growth has stagnated, the Governments of certain eurozone countries have had to borrow more, and as they have become more indebted, fears about their sustainability and ability to support their banking sectors have risen. That has driven an increased cost of borrowing, and the cycle begins again.
In the short term, it is extremely difficult to break that vicious circle without action from an external body, such as the EU, the ECB or the IMF. In Greece, Italy and Spain, the circle has become almost impossible to break without the financial markets believing that the eurozone as a whole is acting as guarantor.
Six weeks ago, the president of the ECB, Mario Draghi, said that he would do “whatever it takes” to save the euro. Only with that guarantee does the ECB believe it can break the vicious circle and begin to lower the cost of borrowing in the eurozone periphery. To that end, the ECB last week announced plans for a new scheme of Government bond buying, which will operate alongside the ESM. Along with other voices around the EU, including our Government and other Governments, we welcome last week’s announcement. Indeed, the French President, Francois Hollande, said in reaction to Mario Draghi’s announcement that “the euro is irreversible” and that the eurozone is now solving problems that have been pending for too long.