Jobs and Growth

Lord Darling of Roulanish Excerpts

Thursday 17th May 2012 Commons Chamber

[Mr Osborne]

I have spent the last 35 minutes explaining how I am digging the country out of the hole that the right hon. Gentleman put us into.

Let me say something about the eurozone crisis. When eurozone central bank governors and Finance Ministers openly speculate on the possibility of Greek exit, the genie is out of the bottle. That and the Greek elections make this a perilous time. We are clear about the three steps the eurozone needs to take if its currency is to function properly.

First, countries in the periphery with high deficits and uncompetitive economies need to confront their problems head-on, as Governments in Ireland, Spain and Italy are. We are doing it in Britain too, but the adjustment our country must go through is made easier by loose monetary policy and a flexible exchange rate. The countries of the eurozone do not have that to help them, so the core of the eurozone, and the European Central Bank, need to do more to support demand and share the burden of adjustment.

Of course, ideas such as the project bonds put forward by the new French Government are worthy of serious consideration, but, fundamentally, the German Finance Minister is right when he says that rising wages in his country and increased domestic demand there can play a substantial role.

Secondly, the eurozone needs to follow what I described a year ago as “the remorseless logic” of monetary union that leads to greater fiscal union. As I said in the same interview, forms of collective support and responsibility must be developed. I echoed the view in many eurozone countries when I spoke of the possibility of eurobonds.

Thirdly, all of us in Europe, including the United Kingdom, need to address our continent’s lack of competitiveness. That involves structural reform to welfare, pensions and labour laws, and completing single markets in services and digital. It means all Europeans, including Britons, rediscovering the ambition and the ethic that made our continent the dynamo of the world economy for so many centuries. It is not that dynamo today. As the Prime Minister says in his speech today:

“The eurozone is at a cross-roads. It either has to make up or it is looking at potential break up.”

No one should underestimate the huge risks of the latter, but Britain will be prepared for whatever comes. We are making the necessary contingency plans. We will take the steps needed to secure our economic stability and protect our financial system. Above all, we will go on with the progress we have made in the last two years on reducing the structural deficit, keeping our credibility in the bond markets and keeping our interest rates low.

[Mr Alistair Darling (Edinburgh South West) (Lab)]

The Chancellor seems to be setting out quite a significant shift in the Government’s policy on what should be happening in Europe, in particular urging the German Government to do things in relation to promoting growth that many of us have argued for several months. Interestingly, they are not to apply to this country. Will he confirm that this is a significant shift, and will he add to his list that it is now desperately important that the eurozone looks at the health of some of the banks in Europe? The Spanish started last week. I do not know whether they have the strength to do what is necessary, but unless the banking system is significantly shored up, if the problems spreading from Greece continue—contagion and so on—we could have another major banking crisis on our hands. That would be an utter disaster.

[Mr Osborne]

I very much agree with the sentiment that the former Chancellor expresses. In the autumn of last year, and indeed before that, the Prime Minister, myself and others in the Government did consistently say, in public as well as in private, that surplus countries in the core of the eurozone needed to do more; that the European Central Bank needed to do more—I said it in the House and we said it in the ECOFINs and European Councils that we attended.

What has changed this week is that, first, the Greek elections have brought back the fear of contagion that had never really quite abated, despite the action of the European Central Bank over Christmas. Secondly, over the weekend and at the beginning of this week, central bank governors and Finance Ministers in the eurozone itself were openly speculating on Greek exit, and that has, as I said, let the genie out of the bottle. Some of the things that we were happy to say in private we are now also willing to say in public, because the issue is out there—on the agenda. We have not put the issue out there in the public domain, but now it is out there, put there by other people. We have very clear ideas of what the eurozone needs to do to make their currency work.

[Mr Darling]

The Chancellor is actually confirming what I thought. It is good that they are saying these things in public, but it does suggest that perhaps there is an opportunity to change direction in Europe. I know we will not agree about what is necessary in this country, but does the Chancellor agree with me that we need to be explicit now that austerity on its own will not work—we need policies of growth to go with it?

[Mr Osborne]

I completely agree that austerity alone is not enough, and that is why I have just been explaining how we have cut business taxes, set up enterprise zones, set up the national loan guarantee scheme and reformed the labour market. We have done all these things so that car companies expand their production and investment in Britain and choose Britain as a place to do business. Of course those countries in Europe need to undertake structural reforms to go alongside their efforts to get their public finances under control, but we have to ask ourselves this question: if you are running a high budget deficit in a single currency zone, and you do not have the support of loose monetary policy, you do need support from the core of the eurozone but to abandon a commitment to austerity will expose you to even greater pressure on the international money markets than those countries are already exposed to.