On Tuesday a group of Eurosceptic Conservative MPs have secured a Commons debate and vote on the issue of the European bail outs. They asked me to support their motion, which I am happy to do. The motion argues that there is no Treaty legal base for making EU money available for bail outs. It questions the idea that the natural disasters clause can be used to justify the EU fund to pay these countries. The aim is to spare the UK the costs of these bail outs, leaving them as a proper matter for the Euroland countries.
The debate should also cover the whole issue of the wisdom of these bail outs. The fact that the Greek bail out has not worked, and has to be renegotiated should lead the EU to reconsider any others. The EU should be worried about the money go round it is creating. A Euro member state needs to borrow more money. It does so from the rest of the EU and from its own banking system. The member state’s debt swells to high levels, so markets worry about the stability of the banks that lend the state in trouble so much money. The state then has to lend more money or offer more guarantees to its banks, so the state itself then needs to borrow more money. This is not a good way to seek to resolve a problem. There is simply too much debt in the system. Weak states cannot easily prop up weak banks, and vice versa.
So what is the answer? There are three parts to a solution. The first is, the overborrowed banks and the overborrowed countries need to sell assets instead of borrowing so much extra money. In order to break out of the vicious cycle of borrowing more, having to pay more interest, and having to borrow more to pay the extra interest, they need to sell assets to stem the borrowing. The damaged banks need to be slimmed down. If they are in grave trouble they need to be put through a kind of managed administration, keeping the important parts going but winding down and selling off the rest. The states need to disentangle themselves from the banking risks. There needs to be an honest statement of the losses to date, and a rapid move to staunch future losses.
The states themselves need to sell assets whilst they are looking for longer term ways to boost their revenues and cut their costs. Greece may well need to get better at collecting its taxes. A higher corporation tax rate is not a good answer for Ireland, as that economy needs to attract more business, not deter what it already has. Setting competitive tax rates may be part of the answer. Tax rates should be set to maximise revenues, not as some kind of revenge against commercial success.
There is, in the end, no substitute for going through the expenses of the state line by line. The not very important and the nice to have have to be deleted. The wasteful and needless have to be rooted out. European governments seem unwilling or unable to live within their means. Everyone else has to. If they refuse to do so, in the end taxpayers have to pick up the bills.