Part of the debate – in the House of Lords at 7:46 pm on 3rd November 2008.

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Photo of Lord Watson of Richmond Lord Watson of Richmond Spokesperson in the Lords (Universities), Innovation, Universities and Skills 7:46 pm, 3rd November 2008

My Lords, there is something rather statuesque about the title of this debate; that the House,

"takes note of the current economic situation".

The words are neutral, even bland, when the reality, as we all recognise, is so serious, so significant and so surprising, even though some of us may claim with hindsight to have felt an early unease, rather like sensing turbulence in an aircraft before it really starts to bounce.

Last week, I did a lot of flying, mainly visiting companies on the Continent. I shall share something of what I heard to illustrate the extent and rapidity of the recession that we now face. Major computer software suppliers compared the present situation with a tsunami, because they felt that they had built in counter-cyclical barriers of many kinds, broad ranges of products, ranges of clients from SMEs to multinationals, and ranges of geographies from China to the US and Asia-Pacific to Latin America. Yet, virtually without warning, the recession has overcome all those barriers.

Car manufacturers said to me, "Suddenly, we have hit a concrete wall". Retailers said that they had moved within a matter of weeks from anticipating the Christmas season to fearing it deeply. Everyone to whom I spoke used the word "unprecedented", yet there is something very predictable and precedented about our response to this crisis. There is the precedent, much discussed this evening, of Keynesianism. The signs are that the Government believe that part of the answer is to spend our way out. Yet, as the right reverend Prelate the Bishop of Chelmsford pointed out earlier, there is something counterintuitive about borrowing and spending our way out when it was borrowing and spending that got us where we now are.

However, the real challenge about the Keynesian precedent is that it was for an industrial manufacturing recession in the 1930s. In the United Kingdom at any rate, we are almost living, rightly or wrongly, in a post-industrial society. The main impact on jobs, as is now widely realised, will be in the south and in London rather than in the north. The question, therefore, is: will Keynesianism work for a post-industrial society such as ours?

During the opening speeches today, there was more than a whiff of the hustings. We were hearing the exchanges that an early general election may make inevitable: "Whose fault?" "To what extent is it the result of government error or Downing Street hubris?" "Would the main opposition party have done any better?". As far as the Liberal Democrats are concerned, with Vince Cable we would of course have done better.

However, one thing is very clear. Whatever we do, and whoever we blame, we cannot and will not return to where we were. When this crisis is over and the recession recedes—and it may take a time—our world will be different. In what ways will it be different? I shall suggest four, although there are many more.

First, there will be a technical but important change. The mark-to-market rules introduced last January by the International Accountancy Standards Board required banks to report their assets daily on a fire-sale basis. The European Union persuaded the IASB to relax these rules, but only after inter-bank lending had dried up and Lehman Brothers, among others, had folded. We should be very wary about returning to the stringency of those rules. What is the Minister's view on the issue?

Secondly, there is European co-operation. It got off to a decidedly shaky start, but it has been more effective of late in dealing with the credit crunch, if not with the recessionary crisis. Sarkozy and Brown have both said—Sarkozy more openly than Brown—what a good crisis they have had. What does the Minister see as the thrust in terms of European co-operation, particularly EU co-operation, on recession rather than the credit crunch and the banking crisis?

It may well be—this will not be good news for everyone in the Chamber—that one of the long-term gainers from this may indeed be the euro. Hungary and others want the shelter of the euro, which is not surprising. The latest opinion polls from Iceland show that the Icelanders after the turmoil of the past month are reconsidering their position.

Thirdly, there will have to be a new architecture—a successor architecture to Bretton Woods. My noble friend Lord Newby, who is in his place, was right earlier to insist that whatever emerges in terms of new architecture, China and India must be given the say that their economic importance and clout requires. There cannot be any further delay about this. What is the Government's timetable on that? How are they going to move this agenda forward?

Finally, tomorrow the Americans choose a new president. The reality of the crisis that we have started to experience, and which we will now experience for quite a long time, is that there are no hard or soft powers. There is no Mars or Venus. There is no unlimited sovereignty for any state, no matter how powerful it may be. Every state is vulnerable. Interdependence is where it is; unprecedented co-operation is what it is about. In the new landscape, every country and every continent is joined. In Washington, in London and throughout the world, grasping this reality can be the one true gain from this appalling global misfortune.