Like the noble Lord, Lord Kerr, I pay tribute to our chairman, the noble Lord, Lord Harrison. He has always been a very genial and capable chairman. I am particularly grateful to him for the fact that we now seem to be getting before our committee rather more representative witnesses, who on occasions represent the majority of the British people. Unlike the noble Lord, Lord Kerr, who I enjoy having on our committee-we have our differences but they are always agreeable ones-I am not going to speak too much about the Prime Minister's speech as my noble friend Lady Noakes has a debate on it next Thursday, to which I hope to contribute. All I would say is that it is a very clever speech. Rather like the Old Testament, there are bits in it which suit absolutely everybody. It does not really matter whether you are a Europhile or a Europhobe. There is something in the speech to keep everybody happy.
On our report, I do not know how many people have actually read it; certainly not an awful lot of action has been taken on it. We must be well aware that the single supervisory mechanism has been adopted, but an awful lot of other things that were heavily recommended in our report have not. I refer particularly to the recovery and resolution directive, which is possibly equally important, if not more so. Of course, the intention was that it would be introduced at the beginning of this year. I now gather that the Dutch and others who see themselves as picking up the tab for ECB intervention into banks have backed off. They do not want to get involved in that anymore. They are going back on earlier undertakings, which is rather typical of how the EU operates most of the time. It takes two steps forward and one step back, and if everything gets rather difficult or if things, as it seems to believe today, are looking rather better, it is a wonderful excuse to do nothing. If that is the EU of which we all want to be part, that is fine, but it certainly does not seem to be the answer for the United Kingdom. Earlier this week, we had some witnesses who described the state of European banks as they now are: they are European in life but still remain national in death.
We are now in a very significant situation. The problem with the EU is that it does things, with enormous reluctance, only when faced with a very major economic crisis. You merely have to lurch from one crisis to another before any difficult measures are taken. There may be people in this House who are dreaming of the day when Europe moves towards much greater integration but it is quite difficult to see how that will happen. It also seems quite clear that it will happen only when there has been one crisis after another.
In 2011, the Prime Minister called for the "big bazooka". He wanted a major move made that would stabilise the sovereign debt crisis in the EU. What happened? Absolutely nothing happened and things got worse and worse. Interest rates on Club Med debt went through the roof. It became such a crisis that eventually the Germans agreed that Mario Draghi should make his statement that he would do anything necessary to stabilise the eurozone. At that stage, the markets calmed down. It was only because it took that long for German agreement to come through and, by that time, confidence had been undermined all over the eurozone. Sovereign debt was getting completely out of control. Investment decisions were being put on hold. When you get that across a large economic area such as the eurozone, you see the economy moving into recession and things getting very much worse.
I always get a wonderful narrative from my son-in-law, who is German and works for a German bank in London. He says that Merkel is playing a fantastically clever game. She is delaying like mad and restructuring the economies of countries in the eurozone. But what she has actually done is bring recession across the whole of the eurozone. Germany itself is now in recession. That does not strike me as being statesmanship. It comes as no surprise to me that she has just lost some Länder elections in Germany. I will be quite surprised if she wins the general election in September of this year. I do not think that there is much to be happy about with the way in which the eurozone is performing at the moment.
Earlier this week, our witnesses said that eurozone bank indebtedness would disappear like the snow in the sunshine once we had economic growth in the eurozone. There are two problems with that. First, we have absolutely no idea of the scale of bank indebtedness in the Club Med countries in the eurozone. However, we know that we are reaching a situation where a number of countries-because they are faced by serious social problems-have said that their banks cannot repossess properties and throw people on to the street. That means that people in those houses stop paying their mortgages because they cannot afford to do so. The next thing you have is moral hazard when someone says, "Well, hold on, my neighbour is not paying his mortgage repayments because he can't. But I think I won't pay mine either, although I can". That leads to a very major problem in the banking sector because all the mortgages are going wrong and you are talking about sliding property prices anyway.
I agree that economic forecasting seems to have gone a bit wobbly right across the board, but if there is any consensus it is that there will be absolutely minimal growth in the eurozone for the next two years. I do not think there is any point in looking much beyond that. However, two years is a long time to have no growth and no relief on this side of things. For that reason, the banking crisis is certainly not over. If the ECB is not going to make itself liable for bank debt, another banking crisis will lead to a sovereign debt crisis and we will be back in much the same situation we were in a few months ago.
There are also serious questions about how much freedom the ECB has to buy sovereign debt. Officially, it is not allowed to print money and the Germans are desperate to try to keep a hold on how much money the ECB spends. They want to pass resolutions in Parliament before very much more money is extended to the ECB. We must accept that, although the recovery and resolution directive has not gone through, there probably will be a crisis which will eventually force it through. Then we will have a very interesting situation. There has been a lot of comment in this debate already about whether we are covered by a double lock voting system in the European Banking Authority. But, come on, let us live in the real world. In the real world, the executive arm will be the ECB, which will make up the rules as it goes along. I do not think that it will constantly refer back and say, "We have a crisis on our hands. Is the EBA happy that we can do this, that or the other?". I think that the guidance that will come from the EBA will be extremely broad in anybody's language and that the ECB will become very much more powerful as it goes along.
We also have the problem of what on earth we do about democratic accountability. It is not going to be a very satisfactory situation when the ECB moves in on a large bank and says, "This thing is going absolutely nowhere. Its liabilities are appalling. We must lay off half the people, break it down and get it into a more sensible state". That will not be a popular move when thousands of people are put on the street. You can imagine that at that point the local politicians will all say, "This is nothing to do with us, you know. It is the ECB that is doing this. We don't like to mention it but it is the Germans standing behind them". That is the sort of situation you are going to get. If you have no democratic accountability-there is absolutely none as regards the ECB-you will have some very serious problems when things start to go wrong with banks. This is all far from being satisfactory and does not bode well at all for those eurozone countries which desire this great process of integration.