Eurozone Financial Assistance

Stephen Williams Excerpts

Tuesday 24th May 2011 Commons Chamber

[Stephen Williams (Bristol West) (LD)]

The background to this debate is the extreme financial turbulence that took place all around the European Union—and, indeed, around the world—in 2008. Since then, the vast majority of EU member states have become stable. They are growing and have deficit reduction plans in place. It is also important to recognise—I am quite surprised that no one from the Government Benches has said this yet—that the UK has not needed assistance from the IMF nor from the European financial stability mechanism, which we theoretically could have called on from our fellow EU member states, or indeed any bilateral assistance, precisely because the coalition Government have put in place a realistic deficit reduction plan to put our finances on to an even keel. However, other EU member states are still struggling and have needed that international assistance—I refer, of course, to Greece, Portugal and Ireland. Today’s debate is concerned with European Union assistance, but we should remember that many fellow member states have also needed IMF support and bilateral loans, from us and other member states.

[Graham Stringer (Blackley and Broughton) (Lab)]

Is not the reason why Greece, Portugal and Ireland have needed money that they cannot alter their exchange rates or control their interest rates because they are in the euro? Some of those countries are cutting even faster than this Government, and it is not helping. The answer to those countries’ problems is to get out of the euro and return to their old currencies.

[Stephen Williams]

I thank the hon. Gentleman for his intervention. I suspect that I may be alone in the Chamber—at least on this side of the Chamber—in being for the euro. I believe that Britain could have benefited from joining back in 1999, but I none the less recognise that the coalition agreement contains a strong statement on how that is simply not up for discussion during the course of this Parliament. I would therefore agree to differ with the hon. Gentleman. Surely one of the reasons why the three states that he mentioned are unable to deliver deficit reduction is not just their membership of the euro, but the fact that their Governments have not been as willing as this Government to take the necessary painful medicine to put themselves back on an even keel.

We have, of course, made bilateral loans as well, recognising that, as the hon. Member for Orpington (Joseph Johnson) said earlier, it is in our own selfish national interest to support our fellow EU member states. Many of those points were made last year in the debates on the Loans to Ireland Act 2010. One statistic, which I thought was implausible when I first heard it—I have now heard it so many times that it must be true—is that Ireland is more significant to our trade than China, India and Brazil, so it is indeed in our national interest to continue to support Ireland.

[Henry Smith (Crawley) (Con)]

My hon. Friend talks about our bilateral and multilateral arrangements. Surely it is in this country’s interest to be flexible and not to get locked into multilateral arrangements, but to have the freedom to make bilateral arrangements when it is in our national interest to do so.

[Stephen Williams]

I thank my hon. Friend for that intervention. He is right to say that we need flexibility. Because we are not in the euro, we are not a participant in the far greater funding of the facility. I think that the figure involved is €400 billion. Our exposure is therefore quite limited.

That leads me on to my next point. The loan to Ireland involves about €7 billion, which is roughly equivalent to the maximum theoretical exposure of the United Kingdom to the loans that we have participated in under the European financial stability mechanism. So what is the cost to the UK? I have already mentioned our IMF and bilateral loan contributions, which we make irrespective of our EU or euro membership. We are outside the EFSM, as I have said, and our EFSM contribution is restricted to the UK share of the European Union budget, which is roughly 12.5%. Our total theoretical exposure is therefore about €7.5 billion, which is roughly equivalent to the bilateral loan that we have decided, of our own volition, to give to our close friend and neighbour, Ireland.

Our contribution to those loans—I emphasise that they are loans—is at risk only if there is a default on the part of the member states receiving them. It is the expectation, when loans are made in the ordinary course of business, and certainly between nation states, that they will be repaid without default, and that they will be repaid with interest. If Ireland and Portugal repay those loans in a timely manner and with interest—the interest rate is quite a hefty one—it will be important to ensure that the interest is credited back to the United Kingdom.

A real cost would be incurred if we did not support our fellow EU member states, which are, after all, our closest trading partners. It would simply not be in the UK’s national interest to watch the eurozone fail and even break up, as I suspect some of my coalition colleagues would like it to do. The resulting massive instability among our closest trading partners on our doorstep would not be in our national interest. I plead with the ministerial team to make the case more strongly on behalf of the Government that UK assistance at this time is in the British national interest, and that it is not merely the result of some philosophical commitment to the European Union, whether by the Liberal Democrats—whom I heard being blamed earlier—or by anyone else. Indeed, if we were not making those contributions via the European financial stability mechanism, it is possible that we would be making higher bilateral contributions or having a higher call on our funds because of our treaty obligations relating to the IMF. It is also right, however, that any such support should be temporary, and that, from 2013, the eurozone should be able to wash its own face and support itself through the proposed new European stability mechanism. It will then be up to Britain to decide whether it wishes to give bilateral assistance, when it is in our national interest to support our closest friends and neighbours.