My Lords, like the noble Lord, Lord Stoddart, I have not failed to notice the empty Benches opposite. I think that the view of members of the Conservative Party is that they do not need to worry about things such as this because they do not support the Maastricht treaty and perhaps do not support the present economic policy of the Government, although they have not been able to produce anybody to say so tonight.
Contrary to what the noble Lord, Lord Stoddart, said, I have no doubt that the Minister will have no difficulty at all in waving aside all the points made from this side with his Etonian insouciance. It is obviously tempting to have a vote, but I think, on balance, the fact is that for many years-10 or 15-we have been committed to this procedure and Labour Governments, as well as Conservative Governments, have thought it right to make a proper contribution to the debate about the EU stability and growth pact. That includes the input of the social partners, the trade unions and employers. That has been to the good.
On this occasion, I think that the future environment of the stability and growth pact is a big question, and I am surprised that the Treasury, with its excellent syntax and arithmetic, has not addressed any of the bigger issues which confront us at what I think is the end of one chapter in Europe and the opening of a new one.
I am referring, among other things, to the fact that we have a presidential election in France. As the Prime Minister said that he supports President Sarkozy, I will take this opportunity to give my maximum support to our comrade over the other side, François Hollande, and wish him well in 12 days' time, or whatever it is. I shall sketch out a hypothetical scenario to which the Treasury should pay some attention. If and when President Hollande is in place and has his first meeting, as he will, with Chancellor Angela Merkel and they reach some agreements and then, one way or another, our Prime Minister meets him in Paris or London, what is he going to say? Is he going to say, "Bingo, the French and the Germans have reached a good agreement"? Have we nothing to contribute to their implicit complete relook at the stability and growth pact? Of course, there is not a word in this document, but I do not know whether any thinking is going on in the Treasury at all. I do not think that it has had any green light from Mr Osborne to do any such thinking, but it had better start in the next 10 days.
Where do we start from? The position of the incoming President Hollande, to take that hypothesis, would be-as he has said pretty consistently-not to undermine the fiscal pact but to but to add a big dimension of growth to the stability and growth pact. So this is the time to examine how on earth they would, without some highly innovative banking ideas, square the circle of getting out of a general slump. It is different from when the Maastricht treaty was created. We were there at its creation and there was a relatively good level of employment. At that phase of the economic cycle, with the underlying position at that stage, it was not unreasonable to have the figure of 3 per cent. By the way, there was a quite separate debate as to whether Greece should not have been treated much more stringently in inquiring about its position when it joined the euro. Allow me to say that that discussion has got totally mixed up with our discussion now, although in principle it is not central to it.
The circle is impossible to square unless we recognise that the arithmetic entails at least 4 per cent economic growth in Europe per annum for a few years to get the 2 per cent underlying growth of productive potential. That is to do with new technology, productivity, science and so on. I have no reason to believe that in Europe generally, one should put the underlying productive potential at less than 2 per cent growth per annum.
We then have to add something to bring down unemployment. The only way to increase income tax revenues and reduce social expenditures, with the revenue side going down and expenditures on unemployment benefit, social housing and general poverty measures going up, is to reduce unemployment to a labour market optimum, whatever figure you would like to take, in five or six years' time. With that arithmetic in mind, it is quite correct for an incoming, left-of-centre French President to discuss with Angela Merkel how to do it, without the knee-jerk rejection from the City of London and the financial markets, which are highly political. Markets, by the way, are not inanimate; they are led and steered by highly political people. That is why we on this side believe in social democratic economics. I emphasise the social democratic as well as the economic aspect of our governance of the economy.
Historically, it has been very interesting that French socialist presidents have tended to get along very well with German CDU chancellors. Those of us who have been around a bit, meeting these heads of government every year, remember very well the very good meetings that we had with François Mitterrand at the Elysée, and the equally good meetings with Helmut Kohl in Bonn, as it was in those days. They had a good working relationship. There was no confusion about a French socialist President acknowledging the legitimacy of a German CDU Chancellor or about a Chancellor recognising the legitimacy of a French socialist President. I predict that that will happen in 10 days' time. I could be wrong, but in that scenario the Treasury had better do some thinking. That was the relationship at the time of Maastricht; it was Kohl-Mitterrand. That was the trade-off, but at that time we did not have this position of a 1920s or 1930s slump. What would they have done and what would we do now?
The fiscal rules that were designed for a time of relatively full employment and equilibrium are not fine for the zero growth, high-unemployment equilibrium caused by the banking crisis of four years ago, which is where we are now. My question to the Minister is: what plans are the British Government making to make a constructive contribution if there is a new French President in 10 days' time? If he cannot answer straight away, perhaps he will write and put a copy in the Library because it would be worth studying that assessment.
We know that we cannot carry on as we are. Fiscal consolidation and setting the public finances on a sustainable path in terms of the present construct may just lead to the death of the patient. I would ask the Minister why he feels so confident that the government strategy will avoid that sad outcome. The interesting OBR report that accompanies the Budget document and this document always has figures for four or five years ahead. But each year you get the next OBR report-it has been going for only a couple of years-and in the Red Book, and so on, there is always a nice rosy picture for three or four years ahead. I shall give you a rather striking statistic, which is the extraordinary downward adjustment in this year's OBR from last year's OBR of seven percentage points, from 8 per cent to 1 per cent, in the growth in investment for 2012. That is a devastating figure. I was not surprised to hear any of the figures that came out today in the light of that OBR figure published two months ago.
I strongly support the remarks made by the noble Lord, Lord Skidelsky, and the other excellent speeches from this side. I regret that we have had no constructive input from the Conservative or Liberal Democrat Benches. Does the Minister agree that the input into the stability and growth path makes it incumbent on the Government to be ready very soon to step up to the plate with a far more constructive contribution to the scenario that I have presented for the very near future?