European Union (Approval of Treaty Amendment Decision) Bill [Lords]

Debate between Kelvin Hopkins and Michael McCann

Monday 3rd September 2012 Commons Chamber

[Kelvin Hopkins]

There is a case that we still have not depreciated our currency enough, but demand for our exports is falling because there is deflation elsewhere, particularly elsewhere in the EU. We should consider the history of devaluations; the proper ones have invariably been very beneficial. After the escape from the exchange rate mechanism in 1992, the economy bounced back strongly and many Conservative Members would agree that, had they managed to stay in office for three or four more years, people might have realised that that big devaluation was driving economic growth and falling unemployment. We reaped the benefit of the collapse and what happened in the ERM, particularly in my constituency, which was the epicentre of housing repossessions and negative equity, which led to my having one of the largest swings to Labour in the country, simply because of the ERM.

I was one of the few people who wrote about economics in 1990 who were saying that the ERM would be a disaster. I predicted—I surprised myself, indeed—the precise course of that experience and said what would happen in the end: interest rates would go through the roof and eventually we would come out of the ERM and devalue, which we did. However, that is not the point that I am making tonight.

I agree with the hon. Member for Stone (Mr Cash) on many things, but I do not agree with him on economic policy. I doubt that many Conservative Members read the New Statesman, but in the last week or two it has featured a series of economists who initially signed a letter of support for the Government, but are now recanting, saying that they made a mistake and should not have called for deflation and cuts. They are implying that that situation ought to be reversed. I agree with them, and I was one of the few in the House who absolutely and profoundly disagreed with the Government from the beginning, quoting Paul Krugman and others, who said that they were going in precisely the wrong direction, towards the savage deflation that led to the 1930s’ depression.

We are in danger of going in that direction now. Countries have to find a way to expand their economies, and they will not do that when they are stuck in stupid arrangements such as the euro. We must have a deconstruction of the euro. There is much talk of an uncontrolled crash, but currency zones can be deconstructed rationally. When the Soviet Union collapsed, all the countries of the ex-Soviet Union created their own currencies. That was done fairly straightforwardly. When Slovakia and the Czech Republic separated as Czechoslovakia broke up, they created their own separate currencies. That worked. It can be done in a controlled and not-too-difficult way. I shall not say that it will be that easy, but it is not impossible and there are examples of such a thing happening. I suggest that, initially, Greece, and perhaps one or two other countries, ought to quit the euro and recreate their own currencies. That might mean freezing banks for a few days and so on.

[Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab)]

I am following the argument closely, but can my hon. Friend explain himself? He is talking about countries that came from an impoverished state, so the only way was up. Surely the problem with the eurozone is that we are talking about countries that have experienced high standards of living. Ultimately, any break up would mean that those would go down.

[Kelvin Hopkins]

Standards of living ultimately depend on productivity. If a country produces wealth it can consume wealth. If those countries get into a position whereby they can start to rebuild their economies and expand growth—have more people going on holiday to Greece, for example—they will bounce back and become better off again. I have said many times, in writing and in the House, that strong currencies derive from strong economies, not the other way round. If a strong currency is imposed on a weak economy, it will drive that economy down.

Finding a way to get that economy to grow, which might initially mean a devaluation, means that the currency will ultimately strengthen. Indeed, the 1944 Bretton Woods conference made arrangements that allowed for countries to depreciate or devalue their currencies as necessary. Indeed, if Keynes had had his way, he would have had countries required to appreciate their currencies. I suggest that Germany ought to be appreciating its currency and not be allowed to get away with what it has done for decades, which is to undervalue its currency. That has meant that it has had a competitive advantage against every other nation in the EU, and indeed in Europe.

If the euro were to be deconstructed, a major consequence would be the new deutschmark appreciating quite substantially. There are now worries even in countries such as Denmark and Finland. Finland, which is in the euro, would be forced upwards to a currency valuation that it found uncomfortable. The Danes have chosen to peg their currency to the euro. They might think again about devaluing, but Germany has, effectively, an undervalued currency relative to all the other countries of Europe, which is a fundamental component of its economic success. That is an unfair way to operate and we ought to address it.

I am pessimistic about the future of the eurozone. At the moment, there is a kind of “quietism”. People in the EU are trying not to talk about all the terrible things that are going on, but as I understand it from my friends on the continent, what is effectively a giant building society in France was last week on the verge of having a run—going bankrupt and people taking their money out. The French Government effectively nationalised it and pushed €90 billion into it to save it. That has just happened to President Hollande, but people do not want to talk about it too much because they know that there are many other problems of that kind. There is a Franco-Belgian bank into which €50 billion has been pumped to keep it alive. Indeed, even German banks have lots of supposed assets that are not really assets; they are IOUs that will never be repaid. If I claimed that people owed me £100,000, but I knew that they were all poor people and would never be able to pay me, that would not be an asset of £100,000, but a worthless IOU. A lot of banks are stuffed full of worthless IOUs; that is the reality. It is only when countries start to manage their economies effectively on a national basis, with an appropriate currency value and appropriate interest rates, that they will start to recover. Many of the poorer countries will never be able to compete within the euro, and ought to get out fairly soon and re-establish their own currency.

Take the case of Ireland; I have many Irish constituents. The reality is that Ireland is part of the British economy more than anything else. It should be part of the sterling area, but it is overvalued relative to sterling. If it recreated the punt, devalued and came into line with sterling, Ireland would benefit enormously, because we are its major trading partner. I hope that will happen, because it will benefit many of my Irish constituents and their relatives in Ireland. I look forward to common sense ultimately prevailing, but I have a feeling that we will go through an awful lot of pain before that happens.