By Tim Montgomerie
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Earlier this week John Baron MP called a debate in Westminster Hall to question UK participation in IMF bailouts of the Eurozone. Pasted below are extracts from what he, Mark Hoban MP and Mark Field MP said.
Endless bailouts and EU summits are not addressing the Eurozone's underlying uncompetitiveness: "Will additional IMF funding work? That will simply reinforce existing eurozone policy, which is itself fundamentally flawed. The existing policy simply does not address the core causes of the crisis, which are a lack of competitiveness and Governments spending too much. Debt is the problem, as I have said, not demand. We have had 14 or perhaps even 15 gatherings, conferences and summits to save the euro, but each has failed to address the core reason for the problem, which is a fundamental lack of competitiveness."
IMF packages usually rely on devaluation nut that option is not available inside the Eurozone: "Another reason why this policy will fail is that it fundamentally ignores the importance of devaluation to recovering economies. Usually, there are three elements in an IMF package: reduced spending, increased revenue and the ability to allow the currency to devalue. That last bit is important because a currency that devalues helps to take the strain off the economy. If an economy is deemed to be, say, 25% uncompetitive compared with its neighbours, allowing its currency to depreciate to about the same extent will go a long way towards taking the strain. If we cut off that option, that 25% gain in competitiveness can only really be brought about by cuts to public services, salaries and pension funds. That is simply not an option, and for that reason that makes those austerity packages so much worse."
The Eurozone, not the IMF should address its problems: "I question why the IMF is getting involved in these bail-outs. The eurozone is a currency union. If a state within the United States got into trouble, the IMF would not be expected to ride to the rescue. The same should be true of the eurozone. I contend that Greece is not economically sovereign; it has no central bank; it cannot set interest rates; it has no currency; and it cannot devalue. I would go so far as to question whether Greece is even politically sovereign. At least in the United States, the people can elect the governor of individual states. That is not happening in Greece and Italy."
The Bundesbank should use its reserves to save the Eurozone: "What makes the situation even worse is that the eurozone has resources that could do much more to help the situation. For example, the Bundesbank has reserves of £180 billion, £130 billion of which is in gold, and gold is going up in price. That is in stark contrast to our country and the action of the previous Government, who sold gold at near the bottom of the market."
The UK government is showing no leadership: "The Government seem to have fallen in behind the French and Germans in this cry that somehow we must save the euro. I suggest to the Minister that that is economic clap-trap. Binding divergent economies into a single currency without full fiscal union was, and remains, a massive mistake. Similar thinking warned us of the perils of exiting the exchange rate mechanism, yet look what happened then: almost to the day that we exited the ERM, our recovery started and it was a very strong recovery."
"Ireland is a country that cannot devalue, but a consequence of the way in which it implemented its reform programmes is that in quarter two growth increased by 1.6%, with a 2.3% increase year on year. That demonstrates that devaluation is not necessary to improve a country’s competitive position, for it to earn its way out of problems or for it to grow. Devaluation may make life easier, but it is not impossible for an economy to grow, even if currency devaluation is not possible."
He confirmed that the UK has committed up to £38.3 billion to the IMF, although only part had been deployed:
"We stand ready to contribute within limits agreed by the House and set out in the International Monetary Fund Act 1979. That limit, denominated in the IMF’s units of account—special drawing rights—currently stands at 38.8 billion SDRs, or about £38.3 billion pounds. Let me remind the House that no one who has lent money to the IMF has ever lost that money. The money goes directly to the IMF and not to individual countries. It is one of the most creditworthy institutions in the world, and its loans are afforded preferred creditor status, which means that they are first in line to be repaid, even if not all other creditors are paid. Consequently, no country has ever lost money as a consequence of lending to it."
Mark Field MP offered some comfort to the government, arguing that an IMF intervention might be necessary. In such circumstances he recommended a full Commons statement and vote so that the nation understood the benefits and the potential costs of such an intervention:
"As MP for the City of London, I reluctantly accept that I have no choice but broadly to support the UK Government’s proposal to underwrite further funds to the IMF. Nevertheless, I regard it as a matter that must be addressed not by the Executive alone but also here in Parliament. If the UK taxpayer is to be further exposed to IMF loans and guarantees, that must happen only after a statement from the Prime Minister outlining why such a course of action is in the national interest, after a full parliamentary debate and as the consequence of an affirmative vote in Parliament. In my view, nothing less will do."