EU: Recent Developments — Motion to Take Note

Part of the debate – in the House of Lords at 12:44 pm on 16 February 2012.

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Photo of Lord Lamont of Lerwick Lord Lamont of Lerwick Conservative 12:44, 16 February 2012

Possible. What I was about to say was that politics is more accurately described as choosing between the utterly impossible and the utterly incredible. That is the situation in which Greece finds itself. The package that has been proposed is extraordinarily far-reaching-a 20 per cent cut in public sector salaries on top of a 20 per cent cut previously, and a 22 per cent cut in the minimum wage. The Greek economy has contracted by 6 per cent in the past year. It has been in recession for five years. Yesterday, someone who described himself as the Minister for Public Order in Greece-a rather Robespierreian title, but I believe it was genuine-appeared and said that Greece was absolutely at the limit of what people could and would be able to tolerate. That seems very probably to be the case. It seems to me unlikely that Greece will ever be able to implement what it is being asked to do. Even if by some miracle it was able to achieve what is being demanded, it will get debt to GDP down to 125 per cent of GDP only by 2020, and so more austerity will be demanded of it, even after 2020. It seems a certainty that Greece will leave the euro. It would probably be more honest and dignified if that happened now, rather than later, after money has been lent to Greece. It will eventually have to make that choice. It will be very difficult in the short term, as it was with Argentina when it ended its currency link and currency board.

The point I want to conclude on is that Greece is not unique. Italy, Spain and Portugal are in a similar, not so bad, situation, but are two years in arrears. Italy, if it is to comply with the fiscal union pact, will have to run a primary surplus of 5 per cent. To get growth, Italy will have to lower its real exchange rate by 20 per cent to 30 per cent without being able to alter its nominal exchange rate. It will have to achieve levels of inflation 2 per cent below those of Germany. This is the prospect that faces Spain, Portugal and Italy. Greece, therefore, is not unique. It is an extreme example, but it is the canary in the mine. Members will remember that miners used to take down a canary into the mine as a warning of the dangers to come. I fear that what the eurozone faces is a very bleak future, and several countries will have to face unrest and discontent-as, indeed, Mario Monti has recognised. The sooner that that is recognised about the euro as a whole the better. Europe is not the euro, and the euro is not the European Union either.