27/10/2011 Daily Politics


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27/10/2011

Andrew Neil is joined by Martha Lane Fox. Alistair Darling, Nigel Lawson and Louise Cooper discuss the European economy deal, and Nick de Bois discusses penalties for knife crime.


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LineFromTo

Afternoon, folks, welcome to the Daily Politics.

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

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

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

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

:00:36.:00:39.

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

:00:39.:00:47.

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

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

:00:50.:00:56.

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

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

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from the city and the thoughts of two former Chancellors.

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

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

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

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the fire for Conservative backbenchers.

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

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has backed down on refusing to allow mandatory sentencing for

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

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backbencher who campaigned for the change.

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

:01:41.:01:46.

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

:01:46.:01:56.
:01:56.:01:56.

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

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

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

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

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

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

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

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

:02:23.:02:28.

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

:02:28.:02:33.

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

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

:02:36.:02:46.
:02:46.:02:46.

against any future government defaults. And thirdly, they also

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

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around one trillion euros, with China possibly being asked to

:02:52.:03:02.
:03:02.:03:03.

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

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

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

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

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The summit communique included measures for a new framework for

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

:03:23.:03:33.
:03:33.:03:36.

wider EU. George Osborne insisted Britain's

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

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euro operates more effectively, provided the interests of all 27

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member-states are properly protected in key areas of European

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policy like the single market, competition and financial services.

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

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national interests are protected and we found allies among the other

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10 members of the EU not in the euro.

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

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

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

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the urgency from European politicians has impressed the

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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shareholders put up with this? reaction of European bank shares

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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details of the bank recapitalisation. This could

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

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

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

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

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When we discuss bank recapitalisations, the bail out

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

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

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

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

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

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

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

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

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

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

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

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

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

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banking recapitalisation, it worked here three years ago because we

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

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

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

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

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some sort of sophisticated financial instrument and people are

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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there a workable plan? Nobody believes the plan presently being

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

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

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

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

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

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

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European leaders because they are following similar policies, but if

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

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

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

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

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

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is a necessary precondition. Absolutely right, confidence is the

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

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

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

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

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

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

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

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

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

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

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

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

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smaller economy based on different circumstances. How does Canada

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

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

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

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

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

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

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

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protection of globalisation, companies can thrive whether they

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

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

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

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

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

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

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

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

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

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deeper fiscal integration and European eurozone government which

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

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

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

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

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

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

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

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

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

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

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

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

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

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greater difficulties. Whether the eurozone will ever emerge the way

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

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:15:33.:15:34.

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

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

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the eurozone going to be the makings of a European superstate

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

:15:50.:16:00.
:16:00.:16:03.

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

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

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

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

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

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

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

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

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

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

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

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

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

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There could have been further problems for the Government next

:17:01.:17:04.

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

:17:04.:17:09.

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

:17:09.:17:13.

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

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

:17:18.:17:23.

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

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

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

:17:30.:17:35.

more. Nothing throws you in this job like

:17:35.:17:39.

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

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

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poured cold water over the idea of applying mandatory sentences to

:17:45.:17:55.

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

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

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

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

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

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

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

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

:18:35.:18:39.

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

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

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

:18:49.:18:54.

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

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automatic life sentence. Ken Clarke says that will probably follow

:18:57.:19:03.

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

:19:03.:19:13.
:19:13.:19:18.

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

:19:18.:19:22.

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

:19:22.:19:27.

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

:19:27.:19:32.

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

:19:32.:19:37.

balancing the things that he anticipates the judiciary having a

:19:37.:19:41.

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

:19:41.:19:44.

balancing that against reasonable demands to introduce mandatory

:19:44.:19:50.

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

:19:50.:19:56.

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

:19:56.:19:59.

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

:19:59.:20:02.

this amendment to the bill committee going back several weeks

:20:02.:20:06.

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

:20:06.:20:10.

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

:20:10.:20:15.

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

:20:15.:20:18.

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

:20:19.:20:24.

admittedly. The deadline was between the amendment and mind.

:20:24.:20:28.

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

:20:28.:20:32.

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

:20:32.:20:35.

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

:20:35.:20:39.

that mandatory sentences was introduced by the Government as a

:20:39.:20:44.

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

:20:44.:20:47.

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

:20:47.:20:52.

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

:20:52.:20:59.

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

:20:59.:21:07.

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

:21:07.:21:12.

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

:21:12.:21:15.

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

:21:15.:21:19.

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

:21:19.:21:24.

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

:21:24.:21:30.

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

:21:30.:21:33.

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

:21:33.:21:37.

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

:21:37.:21:43.

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

:21:43.:21:51.

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

:21:51.:21:55.

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

:21:55.:21:59.

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

:21:59.:22:02.

early intervention and other solutions. What do you think,

:22:02.:22:07.

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

:22:07.:22:11.

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

:22:11.:22:16.

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

:22:16.:22:20.

increases are already absolutely over the top prison system. Our

:22:20.:22:23.

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

:22:23.:22:27.

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

:22:27.:22:31.

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

:22:31.:22:34.

Fundamentally I think it is important that we put as much

:22:34.:22:37.

attention into preventative and rehabilitative parts of this as

:22:37.:22:42.

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

:22:42.:22:45.

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

:22:45.:22:49.

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

:22:49.:22:53.

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

:22:53.:23:00.

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

:23:00.:23:09.

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

:23:09.:23:13.

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

:23:13.:23:17.

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

:23:17.:23:21.

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

:23:21.:23:25.

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

:23:25.:23:28.

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

:23:28.:23:35.

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

:23:35.:23:40.

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

:23:40.:23:44.

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

:23:44.:23:48.

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

:23:48.:23:52.

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

:23:52.:23:56.

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

:23:56.:24:00.

have any success? We went to find out.

:24:00.:24:07.

The three decades a political consensus believed that our economy

:24:07.:24:11.

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

:24:11.:24:15.

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

:24:15.:24:19.

talking about rebalancing the economy and the need to reverse the

:24:19.:24:23.

decline in our manufacturing industries. Since 1970, our

:24:23.:24:28.

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

:24:28.:24:32.

of our GDP and has been completely overwhelmed by service industries

:24:32.:24:37.

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

:24:37.:24:42.

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

:24:42.:24:47.

long-term economic vision. business secretary was fleshing out

:24:47.:24:51.

his industrial strategy yesterday. He paid tribute to British

:24:51.:24:54.

manufacturers already producing things like semiconductors that

:24:54.:24:58.

make mobile phones and computers work. And specialist machine tool

:24:58.:25:04.

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

:25:04.:25:07.

exchange rate which is now competitive. The Government is

:25:07.:25:10.

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

:25:10.:25:15.

apprenticeships, support for finance. We think that combination

:25:15.:25:18.

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

:25:18.:25:22.

certainly build on the strengths of the good industrial companies that

:25:22.:25:26.

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

:25:26.:25:30.

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

:25:30.:25:34.

innovation that comes from having world-class universities like

:25:34.:25:38.

Oxford and Cambridge is not translating into usable research

:25:38.:25:43.

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

:25:43.:25:48.

Science and Technology conference in London welcomed Vince Cable's

:25:48.:25:52.

recent initiatives to create technology innovation centres,

:25:52.:25:55.

which will be a link between academic research and commercial

:25:55.:26:02.

development. Places like technology innovation centres specialise in

:26:02.:26:04.

connecting investors and companies with the research they need to

:26:04.:26:12.

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

:26:12.:26:19.

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

:26:19.:26:23.

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

:26:23.:26:28.

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

:26:28.:26:35.

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

:26:35.:26:42.

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

:26:42.:26:45.

political persuasions have tried to rebalance the divide between the

:26:46.:26:49.

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

:26:49.:26:52.

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

:26:52.:26:55.

relatively poorer. Why do governments think they can

:26:55.:27:02.

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

:27:02.:27:06.

innovation organisation yesterday and somebody showed me the map with

:27:06.:27:09.

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

:27:09.:27:12.

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

:27:13.:27:16.

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

:27:16.:27:20.

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

:27:20.:27:24.

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

:27:24.:27:28.

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

:27:28.:27:32.

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

:27:32.:27:35.

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

:27:35.:27:38.

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

:27:38.:27:44.

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

:27:44.:27:48.

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

:27:48.:27:51.

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

:27:51.:27:56.

to encourage entrepreneurship in the digital sector. But governments

:27:56.:28:00.

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

:28:00.:28:04.

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

:28:04.:28:08.

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

:28:08.:28:12.

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

:28:12.:28:14.

and more people online and encourage them to take their first

:28:14.:28:18.

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

:28:18.:28:22.

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

:28:22.:28:32.

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

:28:32.:28:36.

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

:28:36.:28:40.

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

:28:40.:28:44.

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

:28:44.:28:50.

Andrew Neil is joined by Lastminute.com founder and the UK digital champion, Martha Lane Fox.

There are celebrations in Brussels with the announcement of a deal intended to put the European economy back on course. The Daily Politics has reaction from the City, and the thoughts of former chancellors Alistair Darling and Nigel Lawson, plus BGC's Louise Cooper.

Ken Clarke has backed down on refusing to allow mandatory sentencing for those under 18 caught carrying a knife. Backbencher Nick de Bois, who campaigned for the change, offers his thoughts.

Plus a film looking at how the government is getting on in rebalancing the economy.