Euro Area Crisis: EUC Report — Motion to Take Note

Part of the debate – in the House of Lords at 8:12 pm on 21st May 2012.

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Photo of Lord Sassoon Lord Sassoon The Commercial Secretary to the Treasury 8:12 pm, 21st May 2012

My Lords, I welcome this opportunity to discuss the European Union Committee's report on the Euro area crisis. I first thank the noble Lord, Lord Harrison, and the committee for its thought-provoking analysis, and particularly my noble friend Lord Roper for not only this report but all the other truly excellent work that the committee has done in recent years, which I am fully confident will continue at that excellent level under the chairmanship of the noble Lord, Lord Boswell of Aynho.

The House is aware that these are difficult and dangerous times for the European and the global economy. The ongoing crisis in the Euro area continues to undermine confidence and growth right around the world. We have kept the UK out of that storm by taking decisive and resolute action to tackle our deficit, but it is in our vital interest that the Euro area reaches a lasting and sustainable resolution to the crisis, and it needs to do so quickly-a point firmly emphasised by my noble friend Lord Dobbs.

As the noble Lord, Lord Harrison, reminded us at the outset, the Governor of the Bank of England said only last week, the difficulties in the Euro area represent,

"the biggest risk to recovery", in the UK. So it is in the UK's national interests that we work to resolve these difficulties.

Resolution of the Euro area crisis requires three things: resolving the ongoing uncertainty about Greece; ring-fencing other vulnerable Euro area member states; and properly recapitalising Europe's banks. We should recognise that some progress has been made. Greece was given a second programme of assistance and the face value of its debt written down. As the committee also notes, banks need to be sufficiently capitalised to withstand the instability. At home we have taken the necessary actions and as a result all UK banks passed the recent European Banking Authority capital adequacy tests. However, recent events remind us that significant risks remain and the IMF rightly warns us all that the global economy remains very fragile. That is why we agreed to increase our contribution to the IMF by £10 billion on condition that the IMF supports countries not currencies, that other IMF members also increase contributions, as they have done, and that the euro area increases its own firewall, as it, too, has done.

Noble Lords will be aware that the Government are taking forward legislation to ratify the EU treaty change that provides the legal basis for the European stability mechanism, and we will start to debate that on Wednesday. That means that the position will, I trust, be clear to my noble friend Lady Noakes and to others in this House: the UK will not be making further contributions to eurozone bailout funds under the EU budget. Ultimately, high deficit, low competitiveness countries need to confront their own problems head on. They need to continue taking difficult steps to cut their spending, increase their revenues and undergo structural reforms to boost competitiveness. I agree with much of what the noble Lord, Lord Giddens, said. This is about economic sustainability, in his words-or fiscal sustainability, as I would put it. He did not find another word for growth so I will continue to call it growth. His analysis was very interesting, although, of course-