27/10/2011 Daily Politics


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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


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