Interview with Radio 5 Live’s Nicky Campbell on the eurozone and business calls for a stimulus

Nicky Campbell: We were speaking earlier on to an expert on the Greek economy and he made the point that politicians need to stop their petty politicking and point-scaring and get on and sort it, do you agree?

Ed Balls: Totally, totally. And you’re right, it is not just a tough week, it is a catastrophic week we have had. And the reason is because there is not a sense of collective leadership in the eurozone and Europe more widely and in the world, which we need. I’m afraid you have got countries putting national interests before the collective interest, Germany not being willing to support Italy and other countries, the European Central Bank hamstrung. And in this situation people look at this and say this is just going to hell in a handcart and that is absolutely disastrous because it will have a big impact upon jobs and investment in Britain, in America, all around the world. So I completely agree, this is a terrible political problem.

NC: Do you think that the ECB should play a bigger role and over-ride the views of Sarkozy and Merkel?

EB: I think the European Central Bank should be playing a much bigger role. If you have a single currency in these circumstances where contagion is spreading the central bank must be the lender of last resort. The problem is it is very hard when you have a central bank which has got different political leaders in different countries just to say ‘I am going to override’ when the political backing is not there. Germany must say we back the central bank to do what it takes and the central bank must say we will stop this crisis spreading to Italy. Once they have said they will do that, and the market pressures will then ease, then of course there have to be tough discussions with the new Italian government about what needs to be done. What you can’t do in a single currency is say we’ll only give you the support once you have done these things, because in the meantime they are putting at risk stability and jobs all around the world and that is …it is either deeply short-sighted and narrowly political or they don’t understand the scale of the risks that they are running which are bigger now than we have seen in the last two, three, four years in the world economy.

NC: If Greece were to leave the eurozone it would mean a very difficult time for Greece but might it be better in the long run for the rest of us?

EB: Well can I be honest with you, I don’t really think Greece itself matters too much either way for the rest of the eurozone or the rest of the world …

NC: Really?

EB: Not really because it is too small and it has got big problems itself. The discussion about whether or not Greece might or might not leave is a disastrous discussion, but not necessarily simply for Greece itself, but because it raises the question well if Greece today, maybe Spain tomorrow, maybe Italy the day after. And once that discussion arises it is catastrophic to have political leaders talking and speculating about whether a country might leave a single currency …

NC: Or this two-speed Europe or this new core euro, what do you think about that?

EB: Well I think once you start this discussion which is ‘will countries be in or out of the euro in two or three year’s time’ that immediately raises the question well how quickly could it happen and what the consequences would be. And once you start …

NC: Put off investors?

EB: Well exactly, I mean in those circumstances you think to yourself I’ll go anywhere I can other than taking that risk. The small risk that Italy might default is so massive in its financial implications that people think well why would I run that small risk. So American investors have all been saying for months why bother. But the trouble is there is so much debt and exposure from Italian banks to France, to Germany, to Britain and to America that, if people walk away and those debts become in doubt, that destabilises everybody else’s economy.

NC: So the whole of Europe, we were all seduced? I mean you played your part, Gordon Brown played his part, other politicians went along with it across the continent. We were all seduced by the bubble?

EB: Sorry I thought you were about to say Nicky that I played my part in making sure Britain didn’t join the euro which was possibly the most important thing I’ve ever done in my life, if I am being honest with you.

NC: And also William Hague and others across the political spectrum ..

EB: Was he in government at the time?

NC: No but he was very staunchly saying we have got to save the pound, there were many in your party preparing to join but you stood alone?

EB: No, the government made the decision. Gordon Brown and Tony Blair did.

NC: But, you know what I mean, during the boom years going to the altar of the banks and laying flowers and bowing before them, lots of people did it, you did it, they did it across the continent, how foolish does it now look?

EB: Well look, there is no doubt that in Europe, in Britain, in America, in Japan, all around the world regulation of the banks wasn’t tough enough. And what we saw two years ago was an acceptance when we had the huge crises in Nat West and in Lehman Brothers in America that this was a Britain and American…

NC: I’m specifically talking about that, I’m talking about the boom years. We had two booms during Labour’s power, there was the internet boom back in the end of the ‘90s and also the banking boom where credit was being thrown around …

EB: I think part of the problem that happened was that you had …in fact you had four or five different potential crises – there was the hedge fund crisis in ’98, the internet boom, there was a further crisis when the Iraq war was happening and oil prices went up in 2003 – and each time there was a moment of worry and then the markets calmed down again. And I think what happened was policy-makers all around the world, from Alan Greenspan to the European Central Bank and in Britain too, and I accept that, everybody got into the mindset that this would be OK, things would stabilise and then, as I said, you had this financial crisis in the banks which didn’t go away. The problem was I think the eurozone countries thought it wasn’t really their problem, it was an Anglo-Saxon problem. But all that happened was the eurozone stored up what is turning out to be a much bigger debt and banking crisis two years later on.

NC: Lots of people saying we have an opportunity to claw back powers from the EU – fishing, agriculture, human rights, employment law. If treaties have to be redrawn do support repatriation of powers?

EB: Well let me honest with you, I think if there is that debate it is a debate we should engage in. And I have talked in the past about regional policy or migration policy as areas we would need to look at to see whether powers would need to change. I don’t think for Europe that is the most important priority now. I don’t think for Britain the idea that sort of leaving or pulling away is our first priority. I have to say at this particular moment, when the British economy is doing worse than our European partners over the last year, when next year we are going to have catastrophically slow growth, when unemployment is rising and when we desperately need a plan for growth and jobs, that should be the debate. The Chancellor was reckless a year ago to cut too far and too fast. Now what he is doing is, in my view, grossly, grossly irresponsible.

NC: So would you borrow money?

EB: Borrowing has got to come down, the question is at what pace it comes down. If you try and cut too far and too fast when the rest of the world is in crisis, it ends up … we already know borrowing is going to be £46bn higher than he wanted. There is a debate today driven by business leaders on the front of the Telegraph calling for stimulus, they say cut the 50p top rate of tax and bring forward infrastructure and spending. I don’t think that is the right stimulus myself, but I think a tax cut and spending on infrastructure now is the only way to get the economy moving, unemployment down and to get our deficit down and our Chancellor’s head is buried in the sand. The Prime Minister only wants to blame the eurozone. This will not work. It is grossly irresponsible and we need a change of course.

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Posted November 11th, 2011 by Ed's team