Hansard - United Kingdom Parliament

33 Eurozone (Contingency Plans) 20 JUNE 2011 Eurozone (Contingency Plans) 34
Mr Hoban: I cannot speak for Her Majesty on this
occasion, but I would say to my hon. Friend that we did
not come forward with a statement today because no
decisions have been taken. A statement was put out by
the Eurogroup last night which recognised that work
was in progress, and my right hon. Friend the Chancellor
has continually sought to keep the House informed of
the outcome of such discussions. Once ECOFIN has
met today, there will be an opportunity for him to lay a
statement on the outcome of that meeting.
Mr William Bain (Glasgow North East) (Lab): Despite
the European lenders having cut their exposure to risk
in Greece by 30% in the past year, the risk of contagion
in the eurozone has become the paramount concern.
Will the Minister acknowledge that, with about $2 trillion
exposure to Portugal, Ireland, Italy and Spain by lenders
in the eurozone, any Greek default would have the
potential to devastate the European banking system
and jeopardise the economic recovery in the eurozone?
Mr Hoban: The hon. Gentleman makes an important
point. In the event of a default, there would be consequences
for the strength of bank balance sheets across Europe.
That is why we are going through a stress-testing process
across Europe at the moment to determine the consequences
of various scenarios on the strength of bank balance
sheets. UK banks have strengthened their balance sheets
significantly and they hold high levels of capital. That
will give them some insulation against the impact of a
default.
Mr Julian Brazier (Canterbury) (Con): I welcome my
hon. Friend’s commitments on the non-IMF involvement
of British funds in another bail-out for Greece. Does he
accept that a country running a large balance of payments
deficit can pay off foreign debts only if it is able to
reverse that balance, and that to do that, it has to
devalue? The man from Brussels cannot make water run
uphill.
Mr Hoban: My hon. Friend has pointed to one way
in which a country can regain competitiveness—through
devaluation. There are other ways, including reducing
labour costs and increasing productivity, and all those
actions should be taken to ensure that the Greek economy
and those elsewhere in the eurozone reach a much
stronger position.
Andrew Gwynne (Denton and Reddish) (Lab): The
impact on the British economy of events in the eurozone,
and in Greece in particular, is potentially very significant.
May I press the Minister further on what contingency
plans the Treasury is putting in place to protect the
UK’s financial and economic interests in the event of a
Greek default or, worse still, a domino effect across the
eurozone?
Mr Hoban: I will say this again, so that no one leaves
the Chamber unaware of what is happening: as ever,
discussions are taking place between the Bank of England,
the Treasury and the FSA, and we are considering a
number of scenarios and potential market events. I can
say to the hon. Gentleman that British banks are better
capitalised than they were at the start of the crisis, and
because of the strength of their balance sheets, they are
able to access funding in what can be quite difficult
market conditions. That is a good sign of market confidence
in the strength of the UK banking sector.
Harriett Baldwin (West Worcestershire) (Con): Madame
Christine Lagarde is clearly an outstanding candidate
to be head of the IMF, but is the Minister slightly
concerned that she is French and, given that the French
banks have a very large exposure to the Greek problems,
that she might therefore be conflicted in her approach
to the problem?
Mr Hoban: Madame Lagarde is a strong candidate
for the role of director-general of the IMF. My hon.
Friend is absolutely right to point out that she is French;
that fact has not escaped us in ECOFIN meetings.
Madame Lagarde said on “Newsnight” a couple of
weeks ago that she recognised that the bail-out of
Greece involved a series of agreements between eurozone
countries, and that that should remain the case.
Bill Esterson (Sefton Central) (Lab): The Minister
has an extraordinary level of confidence—well, I think
it is confidence—in the Greeks’ ability to repay the
loans they are currently receiving. I just want to check
with him: how much of the £19.7 billion UK contribution
to the IMF forms part of the Greek bail-out and how
long he is prepared to see us continue to make our
contributions through the IMF?
Mr Hoban: I do not think the hon. Gentleman is
suggesting that we should withdraw our membership of
the IMF—[Interruption.] It is not clear from the question
he is asking. Part of the condition of any bail-out of an
economy by the IMF—whether it is a eurozone economy
or another economy—is a debt sustainability plan, which
is a rigorous part of the assessment process. As was
clear in the Eurogroup statement last night, the IMF
and the Eurogroup have signed off on Greece’s debt
sustainability plan, so they expect that money to be
paid back.
Joseph Johnson (Orpington) (Con): The hon. Member
for Birmingham, Edgbaston (Ms Stuart) questions the
UK’s resilience in the event of a wave of eurozone
defaults. Does the Minister agree that in the eyes of the
markets, the UK has already become something of a
safe haven, with UK 10-year borrowing rates and credit
default swap rates falling last week while the comparable
rates in other countries soared, precisely because the
UK Government have a good deficit reduction plan,
and a good plan for settling our banks and making
them stronger—and they are sticking to it?
Mr Hoban: My hon. Friend is absolutely spot on in
his analysis. I believe that the 10-year gilt rates fell to
3.2% at the end of last week, which reflects the markets’
vote of confidence in the UK economy and particularly
the fact that we took the difficult decisions that the
Labour party shied away from when they were in
government. We took those decisions, which is why the
market rates are similar to those in Germany, yet our
deficit is more in line with that of Portugal.
Tom Blenkinsop (Middlesbrough South and East
Cleveland) (Lab): Can the Minister give an assessment
of what effect a Greek default will have on the German
and French economies, which are more exposed to such
a default, and in turn on UK manufacturing?
Mr Hoban: The hon. Gentleman is right to say that
German and French banks have a greater exposure to
the Greek sovereign debt than the UK banks do. The