OUT stable financial markets, there is little hope for the sustained growth so essential for economic recovery. The UK economy is a global leader in the financial services sector but this leaves it especially prone to the adverse impact of uncertainty on global financial markets.
No UK taxpayer stands by while unimaginably large sums or guarantees go to bail out the banking system with any sense of satisfaction. Indeed, our own Prime Minister and chancellor have repeatedly pledged that there will be “no further bailouts of the Eurozone”.
Regrettably, however, the seventeen-nation Eurozone lacks a central bank with the political clout – or, more important still, sufficient funds – to provide comprehensive cover in the event of a liquidity crisis of similar severity to the credit crunch of 2008. This is partly an issue of design when the euro was set up as well as a reflection of the historical reluctance of Europe’s economic powerhouse, Germany, to surrender control of its financial destiny.
The European Central Bank’s (ECB) mandate should now be to provide market intervention to maintain and restore confidence on behalf of all solvent Eurozone economies. But it is clear that Angela Merkel in Germany, whose domestic political position appears ever more precarious, will not cede control of this deepening crisis to the ECB. Politically this would require – as ever within the EU – bypassing democratic safeguards and potentially involve unfathomably vast quantities of central bank support with potentially hazardous medium-term economic consequences.
In short, while the ECB and the EFSF (the dedicated fund set up to rescue struggling economies in the Eurozone) is sufficiently capitalised to keep smaller Eurozone economies such as Greece, Portugal and Ireland afloat, it is woefully inadequate to provide the same security in the event of a market run on economies the size of Italy and Spain.
This is the problem that will soon confront the Eurozone, the EU and the global economic system. If Italy is close to default the only institution capable of bailing it out is the IMF.
In the event of such a collapse in market confidence for Italy or Spain, the UK as a founder member of the IMF will almost certainly need to increase both its absolute funding and its guarantee facilities to the fund. This is an extremely unpalatable prospect. Nevertheless, a failure to act by the UK would not only have immediate serious consequences to the financial services sector globally, but would amount to abdication of our responsibilities as a mercantile nation in the international field of trade and commerce.
As MP for the City of London I accept reluctantly, in the absence of German backing of the ECB, that I have little choice but to support a proposal by the UK government to underwrite further funds in this way to the IMF.
Nevertheless I also regard this as a matter that must be addressed not by the executive alone but in parliament. If the UK taxpayer is to be further exposed to IMF loans and guarantees this must only happen following a Prime Ministerial statement outlining why such action is in the national interest; after a full parliamentary debate and finally as a consequence of an affirmative vote in parliament.
Mark Field is the MP for the Cities of London and Westminster.