Two minutes with the Archbishop of Eurosceptics
Senior Conservative MP John Redwood on the UK, the Eurozone crisis and why Greece should have left the Euro
He’s the leader of the Eurosceptics, often leading a bedraggled flock through the wilderness. As a preacher, he’s a Cassandra, a prophet whose mortal forecasts were always true but always ignored.
He knows his stuff on the economy, having worked in the City for many years. His CV includes time spent as an investment analyst and working his way up the ladder at N M Rothschild merchant bank to become a senior director.
Margaret Thatcher snapped him up to be her chief policy advisor in government and he enjoyed a quick rise up the ministerial ranks all the way to secretary of state (for Wales).
Now on the backbenches, he has been keeping busy.
Books, prolific blogging and comemnting, a business professorship at Middlesex Uni and a fellowship at at All Souls, Oxford… just to name a few of his current activities.
I caught up with him to get his thoughts on how the UK was faring in the eurozone crisis.
How would you rate Cameron’s approach with his EU partners?
My advice to Mr Cameron is that we should not give them advice on what we need to do. I don’t think they’d welcome a British view on it at all.
We should just stress that their answer to the Eurozone crisis is a much more heavily centralised economic governance which is clear to see that the UK cannot conceivably be part of it and now is the right time to negotiate a new relationship for the United Kingdom.
Mr Cameron is moving in the right direction, it’s crucial that we stress that we don’t want to get in their way but conversely we couldn’t possibly live with what they have in mind
What about the suggestion that the UK could be marginalised?
We’ve always been told we’d be marginalised and we have been since dramatically marginalised over the years. I cannot remember us winning any of the things we wanted.
Mr Blair was promised reform of the common agricultural policy but we never got it. He surrendered some of our rebate which many of us were very angry about it and they never showed good faith delivered in what they promised to return.
We’ve always been marginalised. The difference is do you think you should be able to run France and Germany from Britain? I don’t think you should ever be able to and I don’t want to. Let’s be realistic.
What I do want and the British people want by a larger majority is to have British elected officials run the United Kingdom.
Would you support the UK becoming an independent free-trading nation?
I want the UK to have a new relationship with an emerging European Union and I want that relationship to be focused on trade and political cooperation.
That cooperation would be where it was mutually advantageous so that we should judge things on their merits.
There would be times when we’d want to do things with them and times we don’t.
We happen to be an extremely large and important export market for Germany and France. I’m quite sure that Germany and France would want to come to satisfactory arrangements from their point of view in this new relationship just as we need to have satisfactory relationships from our point of view.
When it comes to banking regulation, the important regulation is occurring at a global level, not at a regional level.
The obvious reasons that the big major banks in America and elsewhere are global banks. You need regulatory understanding between Hong Kong, Shanghai, US and London.
That will be true whatever Britain’s relationship with Brussels might be.
What about Sharon Bowles’ statement that the City will be “interfered with” due to the single market?
It’s a strange way of looking at it. If I want to sell cars to the USA from the UK, of course the cars have to be compliant with American rules. I don’t have any influence over what the American rules are going to be.
Similarly if a British bank based in London wishes to undertake transactions with a German bank or individual, it may well be that Germany or the European Union would have views on how it should be transacted. I have no problem with that as you have to accommodate different jurisdictions.
But it doesn’t mean that the answer is you give up the right to govern yourself.
With the Eurozone, how would you see things playing out over the next few months?
I’ve always said that the breakup of the Euro will take rather a long time. I don’t envisage a break-up of the Euro for next year. I think Mrs Merkel is a pretty talented politician and she has decided that she doesn’t want any breakup of the Euro before she runs for re-election next Autumn.
I think she will show sufficient flexibility on Germany’s part to avoid such an event. In practise they will lend Greece more money and they will call it the same deal but it will be advancing the money to Greece more quickly.
They probably won’t demand all the adequate security they should demand so they’ll delay the issue on whether Greece has to renege again on her debts and what happens if the money runs out.
In the case of Spain, they’ve actually had a rather successful couple of months because just saying that they might buy Spanish bonds from the European central bank has managed to lower Spanish yields and Spain has been able to carry on funding herself for a bit which is very welcome.
If things start getting out of control and the markets say you haven’t solved the underlying problem, that could happen. They’ve got the option of creating more money to push into the European banking system. They’ve got the option of buying a lot more sovereign bonds to try and make it easier. My guess is that they’ll try those experiments before falling to pieces.
Do you envisage the possibility of Greece pulling out of the Euro?
I don’t think Greece wants to pull out of the Euro. Mrs Merkel has decided that she wants to keep Greece in for the moment. If Mrs Merkel wants it, so will the rest of them.
Do you think it could be possible?
There are only three ways where Greece could be forced to exit.
One is there could be a further much bigger run on the banks in Greece. They can contain that because they made cash available to the Greece banking system.
Secondly the Greek state could run out of money to pay its bills. But for the time being the EU and the IMF will make money available to Greece so it can pay its bills.
The third way is if the government loses its grip. So far none of that has happened. They’ve had another election and they’ve carried on for a bit longer. Greece will stay in for a bit.
It can’t work in the long term, it’s unsustainable but they’ve still got the wherewithal to keep it going.
What about the argument that if Greece pulled out and adopted the drachma, it would rapidly devalue?
I think creating the drachma again would be a less bad option than the one they’ve got. There is no good option for Greece because they’re in a difficult position.
The whole idea of setting up the drachma is so it can be devalued!
Greece needs quite a sizable devaluation because it needs to import fewer goods so they have to become more expensive, they need to export more goods or have more tourists so it needs to be cheaper. This is what devaluation would achieve quite rapidly.
Greece is doing exactly what devaluation does the hard way. It has to cut its way to try and make Greece cheaper. It is cutting the incomes of Greek people dramatically so they’re not able to afford the imports so they’re gradually imposing on themselves an internal devaluation.
The new drachma would come in 20-30% lower than the bar rate and that would do much of the job. Otherwise they’d have to have an internal devaluation on that scale which they are gradually putting through. Some of it is beginning to work in a brutal kind of way.
If you look at car sales, they have collapsed. Germany is able to export far fewer cars to Greece because Greece is admitting it can’t afford them anymore.
How long do you think it’ll take for Europe to come out of the Eurozone crisis?
They’re making Greece, Italy and Spain follow austerity policies. Their austerity policies are hitting both the private and public sectors.
Private sectors are being hit by very high tax rates and the public sector is being hit by direct expenditure cuts. They are deflating demand in the way that you have to if you insist on being in a rigid currency system. If they came out of it, you wouldn’t have this much restructuring.
It’d be done automatically for transactions for the outside world in a way I think is less damaging.
With the UK’s current economic direction, are they weathering the storm better?
The UK has had a reasonably austere policy towards the private sector in the last two years. They’ve put in tax increases which have had an impact. Some of them paradoxically have led to less revenue because the rates have gone up too much.
It looks as if that might start to ease in the figures we’re expecting this week. I’m hoping like most commentators that there’ll be some recovery.
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