EU: Financial Stability and Economic Growth

Baroness Noakes Excerpts

Thursday 3rd November 2011 Lords Chamber

[Baroness Noakes]

My Lords, I congratulate the noble Lord, Lord Newby, on securing this debate. I suspect he little thought how topical it would be when he did so. The noble Lord, Lord Newby, and I agree on many things but I do not think that we shall ever agree on Europe. I am proud to be on the Eurosceptic wing of my party and thus I find myself in agreement with the majority of my party and with a clear majority of the country at large, as many polls have shown.

Let me start with some basics. It is undoubtedly in the interests of Britain as a trading nation that there is both financial stability and economic growth within the community of trading nations. Exporters need growth in the global economy and growth, in turn, needs financial stability. That is also true at the level of the individual countries with which we trade. Countries in financial turmoil that show little or no growth are not good trading partners. So I can go along with the argument that says that to the extent that the UK needs or wants to trade with countries within Europe, it is certainly better for us if those countries are financially stable and growing. But how important is the EU, and therefore financial stability and growth in the EU, to the UK? A claim often made by the Government is that the EU is one of the most important trading zones to the UK, giving access to hundreds of millions of consumers. But that is at best only a partial truth. To start with, only around 10 per cent of the UK economy is actually involved in trading with businesses in other EU states. Most of our economy is focused on the UK or on trade outside the EU, and the USA is by far the largest single country, in value terms, with which we trade.

We are a deficit trading nation, with a significant deficit on goods offset by a surplus on services. Two of our five largest deficits are with Germany and France so, although we might have a need to trade with Germany and France and other EU countries, the fact is that our European neighbours need our markets more than we need theirs. On the other hand, we have a trade surplus with the USA.

Focusing on exports, the EU accounts for around 40 per cent of our exports of goods and services; put another way, the rest of the world is more important to us. Of course, 40 per cent is not unimportant but the EU, even without its current problems, is not a source of massive growth. The plain fact is that global growth forecasts are concentrated outside the EU. If our exporters waste all their energies on the economies of mainland Europe, that will be a real tragedy for our future share of global trade.

As I said earlier, it is important that those countries with which we trade are financially stable and offer prospects for growth. But that is a long way from the proposition that the UK Government have a particular role in supporting that stability and growth. That is subject to one overriding concern: namely, the impact of eurozone financial instability on the international banks, including our global banks. I declare here an interest as a director and shareholder of the Royal Bank of Scotland.

It is very much in our interests to ensure that the problems of the eurozone do not, through interconnectedness, spread through the financial system more widely. That is why it is encouraging news that the exit of Greece from the euro is now being openly discussed as that would be better for both. That would allow the eurozone to concentrate on the rest of its problems.

So what should be the UK’s role? I completely support our Government in refusing to put money into the European stability fund, whether directly or via the IMF. We have enough problems of our own without paying for those of other countries. I support our policy that the problems are for the eurozone countries themselves to solve; it is no business of ours to tell our trading partners how to run things. On the other hand, we must be ready to seize any opportunities to improve our position in Europe, which is not good. If the eurozone needs a treaty change to sort itself out, we must grasp that opportunity to gain greater freedoms for the UK. We must focus on our growth and prosperity. The health of our trading partners is an indirect interest derived from and limited to their impact on our economy.

Our agenda in Europe should be directed at the UK's interests. We must cut the budget; we must roll back the encroachment of the EU into our financial services industry; we must gain control over things like the working time directive; and we must reduce the impact of EU rules and regulations. It is our growth, and no one else’s, that should be the subject of our policies and, in forming their policies, the Government must always remember that our history and destiny are global and not European.