27/10/2011 Daily Politics

Afternoon, folks, welcome to the Daily Politics.

European leaders in Brussels finally came up with a plan in the

wee small hours this morning which they hope will put their economies

back on course. The market reaction has been cautiously positive, but

the deal is short of detail in several crucial aspects and many

fear the eurozone still hasn't come up with enough shock and awe to

solve Europe's interminable sovereign debt crisis. They've

agreed to re-capitalise the banks, write off 50% of Greek bank debt

and increase the firepower of Europe's bail out fund. How all

this will be financed, however, is still unclear. We'll get reaction

from the city and the thoughts of two former Chancellors.

Does this agreement now mean the eurozone is one step closer to

being a superstate with the UK left in the slow lane? We'll be asking

where Britain figures in all this and whether it will be more fuel to

the fire for Conservative backbenchers.

However, they do have one reason to celebrate this morning - Ken Clarke

has backed down on refusing to allow mandatory sentencing for

those under 18 caught carrying a knife. We'll speak to one

backbencher who campaigned for the change.

And no matter what's agreed across the Channel, unless Britain can

start growing again there will be no chance of a recovery. We'll look

at how the Government is getting on All that in the next half hour and

with us for the whole programme today is lastminute.com founder and

the UK digital champion, Martha Lane Fox. Welcome to the show.

Thank you. Well, we all knew some sort of deal

would be done, what's unclear is whether it's enough. After the doom

and gloom of the past few days, it's sunshine and smiles all round

as European leaders think they've thrashed out a agreement to save

the euro. Firstly, European leaders agreed a significant reduction in

Greece's debts. The banks have agreed in principle to take a 50%

'haircut'. Secondly, European banks - but not UK ones - will also have

to build up their capital by over 100 billion euros to protect

against any future government defaults. And thirdly, they also

agreed to boost the eurozone's main bail out fund - the EFSF - to

around one trillion euros, with China possibly being asked to

contribute. So will it work? Well, the market reaction has been

positive. The Hang Seng in Hong Kong closed up 2.7% and here in

London the FTSE was up by over 2%. The other big question is whether

these economic measures will end up creating a new eurozone superstate.

The summit communique included measures for a new framework for

the eurozone, including a new president to rival that of the

wider EU. George Osborne insisted Britain's

interests would not be harmed. is in Britain's interest that the

euro operates more effectively, provided the interests of all 27

member-states are properly protected in key areas of European

policy like the single market, competition and financial services.

We are insistent that our boys will continue to be heard and our

national interests are protected and we found allies among the other

10 members of the EU not in the euro.

We spoke to Louise Cooper from BGC Partners yesterday. Let's hear from

her again today to find out what she made of it all. Welcome back.

Give me your overall reaction to what has been announced. I think

the urgency from European politicians has impressed the

market. The fact that we are now on a journey towards some kind of

resolution has impressed the market. But as we talked about yesterday,

we still do not have the deal and it's still not shock and off. When

we talk about 106 billion euros that needs to go into bank

recapitalisation as, most people think that is half what is required.

When we talk about the bail out fund, the EFSF, we don't have a lot

of detail on how it will work. Greece is still left with

unsustainable levels of debt. It is a good work -- thing we are some

way further along the road to a solution, it is a good thing

eurozone policy makers are getting a sense of urgency, but we are

still a long way away from a solution. I've written a blog about

this on the Daily Politics and website. I put the word voluntary

in quotes when it comes to this bank haircut. It was not voluntary.

In the early hours, Angela Merkel and Nicolas Sarkozy threatened the

banks with Greek insolvency if they didn't act. Will the Bank

shareholders put up with this? reaction of European bank shares

has been phenomenal. Barclays Bank is up 13%, Royal Bank of Scotland

up 10%. BNP, the French bank, up 16%. Another French bank up 16%,

Deutsche Bank up 14%. We have been told banks need to raise capital by

June, if they don't raise capital they will have all kinds of

impositions but on them and we have news that they have to accept a 50%

haircut on their Greek loans. I am not convinced it is massively great

news for banks. However, what bank stocks have been hit hard by his

massive uncertainty. It is almost impossible to value them because we

have no idea what the future looks like. Maybe a removal of some of

that uncertainty is the reason why bank stocks are rallying. We are

starting to get the sort of outline as to roughly how much losses they

will have to take and that means we can start to value them.

eurozone is giving the implication that this is the deal that will

resolve things. They admit they have not given all the answers, but

they say they are on the way. We don't know whether 50% is enough,

we don't know the shape of the bail out fund. And we don't know the

details of the bank recapitalisation. This could

dribble on and on, a constant running sore. I can guarantee you,

Andrew, come 1st January you and I will be having this discussion

again. This is not going away, this is not a problem that can be solved

overnight. It wasn't solved overnight. The big problem is debt.

When we discuss bank recapitalisations, the bail out

fund, Greece, none of that is solving the underlying problem, way

too much debt and we need to pay it back. The 11 page communique

doesn't include much on that. will leave it there, hope we see

before January! Thank you. I'm pleased to say I'm joined in

the studio by two former champions of Number 11 Downing Street,

Alistair Darling and Nigel Lawson. Two Chancellors for the price of

one. Alistair Darling, you said of the eurozone carries on with its

patch and mend approach, it is doomed to fail. Is this patch and

mend? And little bit more, but not much more. What they agreed last

night is what they should have agreed a few months ago. Louise is

quite right, until we know how much of a write-down banks are taking,

until we know that Greece has a plan that can be implemented and

delivered, there will be uncertainty. If you look at the

banking recapitalisation, it worked here three years ago because we

could say how much was going to be put into the banks, how much was

public money, which banks were affected, and that gave confidence.

The third element is this rescue fund, a query as to whether it is

big enough, but also what it is. It looks like it will not be cash,

some sort of sophisticated financial instrument and people are

wary of those. Many of them contributed to the current problems.

There is a long time between now and when we will get the detail

which will provide the reassurance that I think people are looking for.

What is your reaction, Nigel? doesn't solve the eurozone problem

not least because the eurozone problem is insoluble. It can't be

solved, only dissolved. That is what will have to happen in the end.

You think it will break up? I think it needs to be done in an orderly

fashion. You can't have a monetary union that is satisfactory without

this fiscal union, attacks union. You can't have that in a democratic

set-up with a full political integration. That is not something

that any body, no major country in the European Union, once. It was

always a non- starter. It was an appalling thing to have started.

However, we are where we are and therefore what we have got to do is

buy time. That is what disagreement does. It begins the process of

buying time, to enable the banks, who are loaded with sovereign debt

which is worth only a fraction of its nominal amount, to replenish

their reserves and their capital. The Greece is still lumbered with a

helluva lot of debt. By 2020, debt will still be 120% of its GDP. This

haircut does not apply to the Greek debt that is held by the IMF,

billions, by the European Central Bank, billions, because these

government institutions don't do haircuts. It still leaves Greece in

a precarious position. It does and more than that, people might worry

that if Greece is still going to be in this position in several years,

what does that mean for other economies? What we needed to get

from the eurozone last night is not just the bank right down, but is

there a workable plan? Nobody believes the plan presently being

attempted in Greece will deliver the goods. They have lost so much

of their capacity to grow that it is unlikely they will service these

loans let alone repay them. That brings me to the other thing that

wasn't discussed last night. If you don't get growth, you'll never get

your deficit down. That affects us in this country as much as it does

European countries. I know it is a difficult subject for the current

European leaders because they are following similar policies, but if

we don't get growth this problem will go on and on and on. Yesterday

was fine, several months too late, but it is nowhere near enough.

Martha Lane Fox, you're nodding, but many people will say there will

be no growth until the eurozone sorts out its problems. Confidence

is shot to hell and the ability of the eurozone to sort out problems

is a necessary precondition. Absolutely right, confidence is the

trick everybody has to pull off. You have to pull off a confidence

trick when you start a business and you have to pull off a much bigger

and more amazing confidence trick at European level. I would still

argue it is an extraordinary project to attempt. We need to be

able to have scale to fight the markets that are growing in the

world, whether that is the economies of Brazil or India or

China. Attempting to make short Europe is as robust as possible...

It is not that extraordinary on the streets of Athens at the moment. Or

Madrid or Lisbon. That is true, but at the same time, those individuals

would certainly say they want to be in the most competitive position

and I struggle to see how we will be able to compete against

economies that are growing right now. Switzerland? It has a much

smaller economy based on different circumstances. How does Canada

manager at? Can't is an interesting example. It is much smaller -

Canada. I'm very surprised. There is no correlation between the size

of an economy and its success. Singapore is a tiny little country

and extremely successful. I was surprised to hear her say it

because it is not a country is in the first instance that of

successful, it is companies. She knows all about that. Provided we

can keep an open trading system, provided there is no resort to

protection of globalisation, companies can thrive whether they

are based in small countries or based in large countries. Let me

look at the political implications of what was decided. We didn't just

get the three-pronged financial approach of the eurozone, we got

quite a political statement. I know it was at the urging of Mrs Merkel.

She wants a new government of the eurozone. She wants fiscal union, a

kind of economic government, so the Germans can make sure they are

getting value for money. They want to make sure that if they are

footing the bill, the eurozone will be run in the way they think it

should be run. What are the implications for Britain of a

deeper fiscal integration and European eurozone government which

we will not be part of? The risk is that the idea behind the European

Union is you have a single trading bloc, a single market. There are a

lot of things they need to do to make it so. I agree with Martha, we

need a far more open and efficient market than we have at the moment.

If you create, within that group, the separate 17 member group, the

risk is that you have two markets. That is not an argument for us

joining the euro. A but it changes our relationship. It will, and if

this is what happens, we need to take stock. It would be a tragedy

at the present time, when frankly most of the world's economies are

struggling, for us to then leap to try to solve the next problem

before he -- we have sorted out the immediate problem. The immediate

problem is getting borrowing down and growth. If we ignore the first

problem and move straight to the eurozone, we are getting into

greater difficulties. Whether the eurozone will ever emerge the way

Germany wants is another question. The Germans are saying you all do

what Riise. I can see 16 members If they have the choice. The one

that pays the bill is usually the piper. Is this potential change in

the eurozone going to be the makings of a European superstate

for the 17, as Robert Peston says on his blog, is this an opportunity

to renegotiate on his -- the terms? I don't think we will go very far

along this path, but there will be a two-tier Europe. One politically

integrated, a superstate, and then other countries associated with it,

of which we will be one. We certainly don't want to be part of

the superstate. But the reason I say it will not happen is because

people, whatever the Angela Merkels of this world want, but people of

the major countries in Europe do not want it and will not tolerate

it and will not go along with it. It is not a viable project. This

project of European and political integration, and I am glad that it

will hit the rocks, but it will hit the rocks. As was said last night,

we now had to solve the problem but we do not know how to get re-

elected. Thank you very much. A new double act in British politics, two

Chancellors. They may even get a free Daily Politics mug.

There could have been further problems for the Government next

week over knife crime. A bill currently going through the Commons

set up a mandatory minimum sentence of six months for anyone over the

age of 18 caught carrying a knife. An amendment was introduced by a

Tory backbencher called Nick de Bois, the MP for Paris central,

calling for the law to apply to those under 18. Ken Clarke was

quite dismissive of the idea earlier in this week but he seems

to have changed his mind. Our political correspondent can tell us

more. Nothing throws you in this job like

a straight answer to a straight question. I put it to Ken Clarke

that someone that looked and sounded a lot like Ken Clarke have

poured cold water over the idea of applying mandatory sentences to

underrate teens for knife crime early in the week, -- under 18th.

And it was a backbencher Nick de Bois that had changed his mind.

This was his response. That is quite right! Nick de Bois is a very

sensible guy. He and the member for Enfield had a problem in Enfield

and I negotiated with them. There were 17 year-olds with this offence.

It is a new offence that I am creating, threatening in certain

sand -- circumstances to cause injury. It is not just carrying the

knife, but using it in a dangerous way. 16 and 17 year-olds really

ought to go into young offenders' institutions for that. The question

is how tough will it be? The headline is two strikes and you are

out. We seem obsessed with the baseball metaphor when we refer to

crime. There are two serious violent offences and you get an

automatic life sentence. Ken Clarke says that will probably follow

anyway. This morning he told me he would be consulting on the idea of

making it easier for parole boards to let out of those sentences. Is

this Ken Clarke having his arm twisted to be tough or is it Ken

Clarke being Ken Clarke? The airy good. I put that question to Nick

de Bois. -- very good. We have just seen the Justice Secretary

balancing the things that he anticipates the judiciary having a

view on. They do not like mandatory sentences and I think he was

balancing that against reasonable demands to introduce mandatory

sentencing. How did you get your way? Was the Prime Minister are

aghast at the possibility of two rebellions in one week? It has been

portrayed as the rebellion but I don't think it was. I first put

this amendment to the bill committee going back several weeks

now. During that time, when I had got the money with the

parliamentary system and how to play this... You are a new kid on

the block? I like that at my age! We are always light on this

programme. There was a process of negotiation and it got quite close,

admittedly. The deadline was between the amendment and mind.

this the rebellion in the making? This was not Ken Clarke's policy

and the backbenchers were backing you and not him. I have 40

backbenchers good enough to sign the motion. But the point here is

that mandatory sentences was introduced by the Government as a

concept, but they only looked at those over 18. My argument was that

we had to be consistent and try and make sure that the law attacked by

the cause of the problem was, which in queues to young people of 16 and

17. The Ministry of Justice said that over 416 and 17 year-olds

could be jailed every year as a result of that. -- 400 people aged

16 and 17 it could be jailed. That is a lot. I have never thought that

legislation can solve the problem of knife crime and I am well aware

of that having had lot of problems in my constituency. What they think

we can achieve here is a simple message about, for the first live

in youth justice sentences, what you will actually get is that you

will go to prison if you use a knife in this fashion. What does

that mean? Using it in a threatening fashion. You do not

have to stab somebody? You already go to jail for that anyway. It is

threatening, and that is what we need, and other means of capturing

the problem of people thinking it is cool to threaten somebody. But I

accept that is only part of the picture. We have a lot to do with

early intervention and other solutions. What do you think,

Martha? I have worked for a long time working with charities trying

to prevent people going to prison. Nick de Bois was telling me about

the rioting in the summer and I am fundamentally against anything that

increases are already absolutely over the top prison system. Our

prisons are collapsing. Even if somebody put a knife to your

throat? I think there are clearly lots of different ways of dealing

with that and I will not make a judgment on individual cases.

Fundamentally I think it is important that we put as much

attention into preventative and rehabilitative parts of this as

anything else. I don't think he disagrees. I do not disagree and I

did not finish one point. The ministry of justice might be saying

that 400 people could go to jail on this. What I hope will happen will

be that the strong message that is going out will be measured by

success by how many... As a deterrent effect? Yeah. If you are

16 or 17 you may not know that that is the law. Did the Prime Minister

intervene? I do not know. We hear that he did. You must have heard

the gossip. I was confident that he supported the concept behind it. I

asked him a question at PMQs and he said he would look at it carefully.

In fairness, I should say this about the Justice Secretary, he had

a few meetings and was open to persuasion was stopped you can be

fair because you have one. Nick de Bois, thank you.

Our economy has become more and more and balanced with our fortunes

hitched to a few industries in one corner of the country. David

Cameron has vowed to change that quote. The coalition is making a

big deal of their plans to rebalance the economy, everybody's

favourite buzz word. Have they had any success so far and could they

have any success? We went to find out.

The three decades a political consensus believed that our economy

and successful growth were safe in the hands of the City of London and

the country's financial services sector. Not any more. Everybody is

talking about rebalancing the economy and the need to reverse the

decline in our manufacturing industries. Since 1970, our

manufacturing base has been sliding. It represents only about one-tenth

of our GDP and has been completely overwhelmed by service industries

and the public sector. One of the first decisions I took when I came

into this job was to put manufacturing at the centre of our

long-term economic vision. business secretary was fleshing out

his industrial strategy yesterday. He paid tribute to British

manufacturers already producing things like semiconductors that

make mobile phones and computers work. And specialist machine tool

companies, exporting to the Far East and South America. There is an

exchange rate which is now competitive. The Government is

putting a lot of support in. There are new technologies and

apprenticeships, support for finance. We think that combination

of things can lift manufacturing, not to buy it was before, but

certainly build on the strengths of the good industrial companies that

we have in Britain. But scratch the surface of this strategy and to

find an argument about money. One of the problems is that brilliant

innovation that comes from having world-class universities like

Oxford and Cambridge is not translating into usable research

and development that can be picked up by industry. Delegates at the

Science and Technology conference in London welcomed Vince Cable's

recent initiatives to create technology innovation centres,

which will be a link between academic research and commercial

development. Places like technology innovation centres specialise in

connecting investors and companies with the research they need to

succeed. The problem is the funding few hundred million pounds over

five years. -- is paltry. When you compare that to the amount spent on

rescuing the financial sector, it is nothing. The technology future

led by British brains is beguiling but it will take decades. And we

need growth now. Pictures from Max's mobile phone.

Quite good quality! Martha, ever since the 1950s, governments of all

political persuasions have tried to rebalance the divide between the

North and the South. The more they do, the wider the gap has got

between the South which has got richer and the North which has got

relatively poorer. Why do governments think they can

rebalance the economy? It is interesting, isn't it? I was at an

innovation organisation yesterday and somebody showed me the map with

the fastest growing companies in the UK on it. My perception was as

you have described, but actually they were spread across the country.

There was an equal mixture between North and South. Clearly there are

some challenges still, but perhaps there are signs that there is more

of a spread of innovation happening across the country. I wonder if

Government can ever get this right. In 1992 President Clinton called a

jobs council to work out where the new jobs would come from and what

the Government could do to help. They picked all kinds of things and

one thing that never appeared on the radar was something called the

internet! They never saw it coming. Governments do not have a good

track record of looking in crystal balls. And I have been at round

tables in Number 10 since we started our business looking at how

to encourage entrepreneurship in the digital sector. But governments

do have the power of convening people, bringing them together to

focus on the part of the economy, which is imported. Digitally we are

quite strong as a country. Quite strong. The UK is the digital

champion and we are trying to be stronger. We are trying to get more

and more people online and encourage them to take their first

steps on the web. There could be nothing less digital than this. You

have to pick the winner of Guess The Year from yesterday. It was

1990. Can you say the name? Alan Robertson. Congratulations, the mug

is yours. Thanks to Martha for being our guest of the day. With me

on the sofa on BBC One tonight will be Alan Johnson and Michael

Portillo. Will Hutton will look into the eurozone problems, Kevin