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European Council

I do not subscribe to the view that British foreign policy should be constantly to try to divide and rule on the continent. Actually, I think it would be in our interests if the euro succeeded with a democratic settlement in the European Union, but for the euro to succeed with 17 nations the institutions would be required to take on much more power, to accumulate much more taxation and to distribute money much more than they do now, and I put it to the House that because there is a democratic deficit in the EU, which everyone acknowledges, the institutions lack the legitimacy and the authority to be able to impose their will across the democratic nations of the EU. There is a fundamental lack of consent to what would be required to impose the necessary discipline. The problem with the fiscal union treaty is that it is a case of Germany trying to write German rules for the whole eurozone. That will not work—it cannot be sustained—and the result will be the break-up of the euro, so we had better start planning for that eventuality now. There are three things we should do, the first of which is to have a plan and not pretend that a break-up will not happen. I accept the suggestion made by my right hon. Friend the Member for Wokingham (Mr Redwood) that the plan should be made in secret, but there should be a plan and the IMF should be its guardian. Secondly, the plan should be clear on what liabilities will be denominated in what currencies as each country comes out of the euro—easy for sovereign debt and very complicated for commercial paper, but it has to be done. Thirdly, the G20 must be ready to provide the liquidity needed to deal with the defaults that will occur as each country comes out of the euro—massive defaults that will require massive central Government printing of money to recapitalise the European banking system. That can be done and it has to be done. My right hon. Friend the Prime Minister was absolutely right to veto the treaty on 9 December. He knows there can be no going back on that decision, because to do so would leave him a position where he might as well have not vetoed the treaty, and then where would we be?