Examination of Witnesses (Questions 60-65)
Mr Jim Murphy MP and Mr Ananda Guha
25 MARCH 2008
Q60 Chairman: Was there any consideration
given to giving assurances to Turkey that these new arrangements
would not in any way threaten their negotiations with the EU?
Mr Murphy: We have said it very clearly to Turkey.
For Turkey, of course, for understandable reasons, there is an
additional anxiety that this is not an alternative to their membership
ambitions either. There is a very detailed discussion going on
just now, as your Lordships would expect, with the Turkish government
about which chapters of its accession process can be opened over
the next six to nine months, particularly the dynamics and the
rate of progress during the French Presidency. But we are confident
that continuing under the Slovenian Presidency and then going
into the French Presidency that Turkey will continue to see a
momentum towards EU membership. Of course we will not come close
to completing the process, but perhaps two or three additional
chapters would be opened that allows Turkey to make progress and
for domestic purposes, importantly, to be seen to make progress.
Chairman: I am glad to hear you say that because
there were many who suspected—maybe wrongly—that the
initial proposal coming from France masked a certain agenda about
keeping Turkey happy with something like that rather than full
membership. I am glad you have clarified that point. We have ten
minutes left, if the Minister will indulge us, and we have a couple
of questions—one from Lord Jopling and then one from Lord
Kerr—on the stability of the financial markets, and the
question of the euro.
Q61 Lord Jopling: Quite rightly the communiqué
devotes a lot of space to the current instability in the financial
markets and I wonder, Minister, if you could tell us what role
you think that the EU can play in dealing with the resolution
of problems of this sort? Also, I must say that reading this part
of the communiqué there seems to me that there are an awful
lot of pious hopes and aspirations. For instance, if I can pick
out four: one, the EU stands ready to take regulatory and supervisory
action; two, it invites ECOFIN to swiftly and completely implement
the programme of work agreed—that is their split infinitive
and not mine—and three, the EU should work in close cooperation
with its international partners; and four, the Council should
continue to give high priority to these institutes. What type
of regulatory and supervisory actions do you think the EU will
actually do rather than just express hopes of this sort in the
short and the medium terms?
Mr Murphy: The specific issue here I think is
where does the EU have competence, and that is the starting point
of this question and this issue. I think the important added value
that the European Union as an organisation and as an institution
can provide is about a consistency of message across major European
capitals, the governments of those nations with major financial
centres in their capitals, and to do all that we can as Member
States, as the communiqué refers to, whether in pious terms
or high level terms, coordinating that political effort about
a consistent message of confidence about international global
economic stability and macroeconomics in the EU. Then you get
to a point about which levers does the EU have to pull to ensure
stability. Things that are being considered would be about Member
States, what are called cross-border stability groups—another
dreadful name but it does exactly as suggested—whereby groups
of Member States come together perhaps on specific sectors or
on specific pressure points and work their way through the specific
political and diplomatic/economic response. So that is a specific.
Then there are also the proposals, about which I will happily
provide more details to your Lordships, about the banking reform
consultation document, which is, as I understand it, set out in
Chapter 2 of that consultation document, and the UK is in the
process of setting out some detail as to how we think that banking
reform consultation document could improve the EU's posture in
the context of recent global turmoil. If your Lordships would
find it helpful I would happily provide details of the Government's
thinking as that process continues. Additionally, these issues
will be things that the Chancellor will be discussing in ECOFIN,
I think next month, at an ECOFIN gathering. So he will be discussing
the issue of regulators, supervisors, the EU Deposit Guarantee
Scheme and much else. There are these specific medium-level interventions
that the EU can make, which are important, as part of a wider
response.
Q62 Lord Jopling: So there is nothing much
else but talk and thinking in positive terms in the short and
medium term?
Mr Murphy: It comes back to first of all a political
economic posture in the face of challenge, whether it was on the
challenge of climate change or the challenge of China and economic
globalisation or the challenge of the turmoil in the financial
markets. There is a temptation on occasion to retreat inside protectionism.
I think what is significant is that in this context of the EU
in the remarkable nature of 27 governments working together on
this is that that just was not the temptation or the inclination
at all, and the communiqué shows this—it is about
the continuing commitment to open markets, flexible markets, no
attempt to get involved in the protectionist policies of the past
and then building on the spring Council Conclusions about transparency,
disclosure and work on credit ratings agencies. So there are specifics
that the European Union is working on inside the principle, and
the principle is remaining open, flexible, a place for international
investment, but the specifics are there about transparency, credit
rating agencies, cross-border stability groups and the Deposit
Guarantee Scheme and the banking proposals that I mentioned. So
there are specifics to add to what may be regarded by some as
pious words or high level general declarations; but there are
specific concrete proposals there as well.
Q63 Lord Kerr of Kinlochard: I think we
have an insoluble problem here, the one to which Lord Jopling
draws attention, because if the European Council were planning
a cunning initiative for financial stability in the markets then
the correct thing to put out would be exactly this sort of boiler
plate Conclusions text which would not reveal the initiative until
it was ready to go; and the Minister is much too cunning to breathe
a word about that, so there is no point in my asking him! But
I was puzzled to find not even boiler plate on the euro. If you
read the French press or the Italian press the wicked Fed is driving
the dollar down and wicked Frankfurt is keeping the euro strong
and killing the export industries of France and Italy. You do
not read that in the German press because German exporters are
not being killed, and are indeed to be succeeding. Was there in
fact any discussion of exchange rates and the euro?
Mr Murphy: Lord Kerr is already laughing before
I even attempt a polite answer to his jovial but also accurate
question! There were discussions but there were no demands for
intervention from the Central Bank or anything of that nature.
I think Lord Kerr puts his finger on it, that in this context
the German economy continues to progress in the euro zone in a
really pretty effective way in terms of its performance of exports
and everything else. As a Scotsman I do not use cricketing analogies
very often, when I say I have to play a straight bat on this and
say that there were no demands for Central Bank intervention and,
perhaps more importantly, there was no conversation about the
UK changing its position on the Single Currency because that is
still captured in those famous five economic tests, which we have
no intention of revisiting, and they remain constant today as
they were some time ago.
Q64 Lord Kerr of Kinlochard: That was more
than I expected!
Mr Murphy: I am being as frank as I can be!
My Lord Chairman, I think the general point is I am not sure it
would be welcome for me to comment on the exchange rates and the
appropriate level of the euro; this is an issue for the markets
and the market will decide and it is currently making its decision.
Q65 Chairman: I am minded to recall that
when the famous five tests first came up and included the phrase
"clear and unambiguous" evidence, Anatole Kaletsky said
that in economics there is no such thing as clear and unambiguous
evidence! Minister, thank you. We are letting you go one minute
early but you deserve the rest; you have given us a lot of information
and answered our questions very fully, as always, and we thank
you very much indeed and we look forward to seeing you after another
Council. Thank you and all your staff for communicating with us,
not just here in this room but on a very regular basis. We really
appreciate the way in which you handle our requests for information
and our comments; it is very helpful. Thank you very much indeed.
Mr Murphy: Thank you to your Lordships.
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