29/06/2012 Daily Politics

Morning, folks, welcome to the Daily Politics on Friday. It looks

like it could be another bad day for British banks. They are under

fire again, this time for failings in the way they sold a complex

financial product to small businesses. Bank of England

governor Mervyn King says change is needed in the culture of the

banking industry. I think we worked that out ourselves. Meanwhile,

Barclays' chief executive Bob Diamond has said he will not resign

despite criticism of his bank for rigging a key international

interest rate. We sent Adam out with the mood box to see whether

anyone still trusts the banks. A European leaders agreed new

measures in another attempt to restore financial stability to the

Eurozone. They have also approved a 120 billion euro plan to boost

economic growth. And we take a look back at an

eventful week in the Westminster village.

With me today, Camilla Cavendish from the Times and Rafael Behr from

the New Statesman. First, let's turn our eyes to Europe, because

after emergency overnight talks, Eurozone leaders have agreed new

measures to bolster ailing banks and over indebted governments.

Asian and European stock markets have risen sharply on the news. But

how they perform later today is another matter. The European

Council President, Herman van Rompuy, described the measures as a

breakthrough. The agreement is aimed particularly at rescuing

Spain's troubled banks and reducing borrowing costs of southern

European countries. This is what the Prime Minister, who was not

part of this agreement, had to say this morning. The countries of the

Eurozone did take important steps forward last night. For a long time,

we have said more action needs to be taken for short-term financial

stability. More to recapitalise banks, to use firewalls, to drive

down interest rates and create greater stability. They took

important steps forward last night. There is still work to do.

With us now, Sharon Bowles, a Liberal Democrat MEP, and also

chair of the European Parliament's economic and monetary affairs

committee. And the Conservative MP John Barron is with us, too. Sharon

Bowles, let me come to you first. Does this represent a step-change

in the Eurozone's efforts to sort itself out, or is it just a bigger

sticking plaster? It is a bit of sticking plaster, and one move

towards this Aof greater integration. The cars we will have

a banking union? Well, it is part of the banking union proposals. The

supervision by the ECB is the right way for it to go. There was a fight

as to whether it should be the ECB or the European Banking Authority.

The ECB fits much better and also works better for the UK. This means

the European bail-out funds, the temporary one and then the

permanent one, will, in return for buying Spanish bank bonds, they

will have to take on to their balance sheet for billions of

euros' worth of dodgy Spanish bank shares, correct? Yes. That is

really encouraging if you are a German taxpayer. The problem is

that neutralising the sovereign debt was difficult. But they have

not done that. Neutralising bank debt is even bigger, so they still

need to find some way to bring down the cost of sovereign debt without

resorting to the bail-out mechanisms. But there is a step

towards a banking union, which will be run by the Germans, no doubt.

They are already in control of the committee to set it up. The bail-

out mechanisms will be able to put money directly onto the dodgy

banks' balance sheets rather than through the Government's, so it

doesn't amount to sovereign debt. But there will also be able to buy

a sovereign debt as well, not the ECB, but the bail-out mechanisms

will be able to buy dodgy sovereign debt to add to that dodgy bank

shares. It sounds dodgy to me. The problem is that there is an

enormous amount of debt in the system, and no amount of moving the

debt between government and banks or vice versa can conceal or erode

its scale. Until you address that, everything else is sticking

plasters. This must be the 20th summit we have had. It has done

more than usual. A bit more, but it has not solved the problem in the

sense that we still have enormous debt. If you really want a

sustainable long-term solution, you have to narrow the gap between what

governments earn and spend, make economies more competitive. Where

are the sweeping supply-side reforms needed to encourage greater

growth? Mrs Merkel, in some ways, retreated from the position she had

before. That is the position of the New Statesman, which described Mrs

Merkel as the most dangerous German leader since Hitler. I did not

realise the New Statesman was a tabloid. You must be happy. Those

are not my words, it is a view. We are an ecumenical publication. This

has been a defeat for Angela Merkel to an extent. The big picture with

this crisis has always been that at some stage, if they want to save

the Eurozone, Germany has to put its economy up as collateral for

the debts of the southern European states. The German economy is not

big enough. They need to demonstrate to the markets to give

them the confidence that institutionally, there will be

integration at a scale that will tell everyone they are committed to

the project. As you say, German taxpayers are not keen on that.

Berry's a lot of trust -- they need a lot of trust in the southern

European states that they would behave in a way that would make

this work. But yesterday, we saw a softening of the German position.

They were saying, OK, you need the money. The Italians and Spanish

were saying, trust us, we will do the fiscal discipline. The banking

union will be supervised by the Germans, and the Germans will be in

direct control of the behaviour of every systemic Club Med bank. For

Britain, as the capital of European finance, is it a danger or an

opportunity that the Eurozone is going to a banking union? It is

both. Clearly, the City is concerned. Since 2007, the EU has

started to swing away from creating a level playing field, which

benefited the city enormously, towards endless levels of medalling,

which the City does not like. There will be some business lost. But on

the other hand, it is firstly vital that we get the Eurozone sorted out.

Nobody will benefit if these countries collapse. Secondly, the

City is the gateway to the world, not just Europe. We have the second

biggest insurance industry in the world. And we set LIBOR. Which we

will come on to. If what do you think? Is a banking union an

opportunity for Britain, or a disadvantage? I agree that it is a

bit of both. It is better than try to have supervision that covers us

as well by the European Banking Authority, which would not have had

the adequate powers to supervise a large systemic bank. So it is

better than the alternative. If you have the ECB playing a role for the

Eurozone, a consequence of that is that a parallel role has to be

recognised for the Bank of England. This argument about maximum

harmonisation of capital has to be eroded, because they are saying you

have to take account of monetary policy in supervision. What is

sauce for the goose is sauce for the gander. That applies to the UK

as well. That helps resolve the tension. We still do not know the

shape of it, though. The City of London seems to have prospered well

in the shadow of a bigger monetary union known as the United States.

Are you any closer on your petition numbers? IUD gathering names among

Tories or the public in general? This is simply Conservative

backbenchers. About 100. The referendum will take place in the

next Parliament, but they will be put on the statute book in this

Parliament, making the case for a referendum. The wording will be

decided once we have had an informed debate. That debate has

yet to be had. So you are asking people to sign a petition with no

idea what the referendum will be about? Well, yes, because at the

end of the day, we need a debate as to what should be on the referendum.

But it is about our future relationship with the EU, because

they can be no doubt, particularly after the Eurozone crisis, that the

EU is fundamentally changing. And people want a say as to our future

relationship. Will the Europeans be happy that you have been chair of

this committee? This is something I face almost day in, day out. There

is a fair degree of respect that how I have handled matters. The

parliament in general is united in that we do not divide. We are a

parliament for the EU. I would not take the pessimistic view you have

about the Eurozone. If the euro wants to be a reserve currency, it

can't do that. The US doesn't do that for the dollar. And I think

the UK is right. It is against the single market. We have to leave it

there. No doubt there will be lots more discussion about where this

leaves the City of London. Speaking of the City of London, who

would think the London interbank offered rate, or LIBOR, would kick

up such a financial and political storm? Assets but 99% of you didn't

even know what LIBOR was until this boat. Some of you may still not.

Well, it would be a storm if a bank was found trying to rid it for

financial gain. That is what bhajis was found try to do, and they have

had to pay a hefty price for it. But not the resignation of their

chief executive, Bob Diamond, or even the chairman has not been put

up for ritual sacrifice yeah, but they paid �290 million in fines.

This is what the Governor of the Bank of England Mervyn King had to

say about the affair a few minutes ago. There must be many people who

work in the banking industry today who know that they are honest,

hard-working and feel they have been let down by some of their

colleagues and leaders. I hoped everyone now understands that

something went very wrong with the UK banding -- banking industry, and

we need to put it right. That goes both to the question of culture in

the banking industry and to the structure of the banking industry,

from excessive levels of compensation to shoddy treatment of

customers, to a deceitful manipulation of one of the most

important interest rates, and now this morning to news of yet another

misselling scandal. We can see that we need a real change in the

culture of the industry. That was the Governor of the Bank of England.

We are joined now by our political correspondent, who also doubles up

adds the BBC's Mary Poppins, as you can see. The chief executive of

Barclays, Bob Diamond, sent this letter to Andrew Tyrie, chair of

the select committee. He will have to appear before them. It was quite

a defiant letter. How has it gone down? I do not think MPs will be

impressed with the tone of this letter, because Bob Diamond says he

is happy to come to the committee to talk about what has gone on at

Barclays, but there is no hint of any kind of apology. He admits that

there was inappropriate behaviour, but he says this was limited to a

small number of individuals and there is no suggestion that it went

to the top of the bank. That kind of response will not satisfy

politicians across all parties, who feel that the way this rate was

manipulated, and you heard from Mervyn King talking about cynical

manipulation of a rate which affected the mortgages of ordinary

people, and politicians from all parties are questioning how the

bank is possibly going to manage to rebuild trust with the public while

Bob Diamond remains in charge. For some strange reason, we thought

that feeling on the banks on the high streets could be running high.

They may like them, they may not. There have been loads of stories

about banks mucking up. When we asked people do you still have

faith in the banking system, where will they make their deposit, yes

or no? Reluctantly, I will say yes. Why is that? It needs regulating,

obviously. At the moment I know things look bad, but I think it's

probably not the the banking system we shouldn't have faith in but more

the bankers themselves. No. Why is that? Because sometimes they will

take my money out of my account but I don't know why. From what I have

been reading lately it's quite bad, I don't trust it myself. But you

still use a bank? I have to, I get paid into a bank. It's the only way.

Why have you said no? I don't really know why, because it's a

business, and it's about profit. It's not about people who have a

bank account. I don't think I have ever had faith in the banks. It's

going to be a no. I hate credit cards and things, I try not to have

an overdraft or anything. Yeah, it's all gone up the creek.

vote with your pennies and pounds? I have a big penny jar at home that

needs counting. Do you trust the system? Have you come to

investigate Barclays? Well, there are absolutely loads of

banks on this street, so let's go and head to another one.

You said no, why? Well, it's just what's in the press at the moment.

You I think it's probably a reflection of dodgy dealings going

on there. Would you like to give us your

views on the banks while you are waiting for the bus? I trust them,

even though I work for them. are in the belly of the beast?

but I trust them. It's not the problem. What is the problem?

Government. You work in a bank, are you a trustworthy person? Very.

They get the blame for things that weren't their fault, so I am not

sure who to vote for. In the middle? Try to balance it. You are

like a hedge fund. People have been so keen to vote and voted for one

option overwhelmingly, it looks like the banking system is

seriously overdrawn. You don't keep your money under the mattress?

Might get robbed. I got to have enough for my funeral, you know,

because I won't be here too long. She won't need that money for a

long, long time. We did ask the Treasury if a Minister was

available and to our shock, horror and surprise, none was. No idea why.

But there you go. It's Friday. With us however is the shadow

Treasury Minister, Chris Leslie. Why did you allow this to happen

under Labour? Well, I mean, hindsight is a wonderful thing.

When Labour came in it had a whole series of unregulated self-

regulated financial services. We created a Financial Services

Authority and gave it some regulatory powers. Of course, we

then had this global credit crunch, regulators, governments around the

world didn't spot the absolute appalling risk-taking going on. The

question now is today with a contemporary legislation before

parliament what are the judgments that need to be made? I think there

are serious doubts about whether the Government are going far enough

today. Maybe, but your only financial services and markets Act

failed to regulate LIBOR, didn't mention LIBOR. You left it to the

banks to fix LIBOR themselves. Why did you do that? Well, and LIBOR

has been unregulated since it began. Interestingly over the past year

several of my Labour colleagues, including myself on the 6th March,

raised this question about surely LIBOR should now begin to come

under the regulator - I put this... Shouldn't you be asking Ed Balls,

Ed Miliband and Alistair Darling, they were the people who who didn't

do it. We have known there has been some sort of investigation for the

past year into LIBOR. I put to the Minister on 6th March do you have a

view about whether this should be regulated. His answer to me in a

single word, no. No view at all. That's the astonishing thing. Of

course they've been forced to U- turn yesterday when this blew up. I

think now we need to recognise that this isn't just a question of

regulatory fail failures with one individual and one bank, this could

be across the whole system. We are starting to head to a situation

where we really need to take a systemic view about whether bigger

reforms are necessary. It's interesting almost everything you

did has fallen apart, hasn't it? You put in a tri-partite regulatory

system, that didn't survive the crash. No longer exists. No more

boom and bust. We have had the biggest bust since the 1930s. You

imposed PFI on the NHS, they're now going - hospitals are going bust,

as well. You dined out out on a light touch regulation which was

really another word for the wild west. I am not going to claim

everything... Not a great record. Not everything being rosy. It's all

all withered on the vine. There were some steps taken to improve

regulation, not enough. But the idea that the Chancellor or the

Conservatives have some sort of insight here that the previous

Government didn't, they were not saying regulate more heavily,

Andrew. Excuse me, as you know,... They criticised us for regulating.

Could you show me where you urged Labour to do more and answer comes

there none. Why are you not calling for Bob Diamond's resignation?

suspect because this is more than just one chief executive of one

bank. We are talking about multiple executives. Why shouldn't we have a

huge clearout of this generation of bankers that's brought us to our

knees and start again? I suspect that's probably going to be on the

cards. I really do think that we are talking about a much more

systemic inquiry. There are plenty of banks - but why not... Why are

you not calling for Bob Diamond's resignation? There could be a move

between regulators slapping people on the wrist and finding them and

into criminal investigations. There was some doubt yesterday about do

the regulators have the criminal powers. It's clear now that the

Serious Fraud Office, the City of London Police do have the criminal

capability to pursue conspiracy to defraud and so forth. That's why we

have to be a little bit circumspect about the criminal implications.

The Serious Fraud Office doesn't do financial regulation, it implements

the criminal law. That's a different matter. Let me come to

our journalists here. Shouldn't we now have a Leveson-style inquiry

into the banks? I wouldn't wish a Leveson Inquiry on anybody. A judge

who knows something about banking to do it as opposed to the current

one on journalism. I think we have had a huge problem in this country

because we haven't prosecuted. In the US they've taken a lot of

people to court, pursued inquiries. A lot of people have gone to jail.

They've had a sort of truth and reconciliation in a sense. One

thing we all need in this country is to get over this issue, restore

banks, we also need to have faith in our banks again. I agree we need

to do something to punch that but I don't want a two-year inquiry. I

think this is quite simple. Either you find a way to prosecute which

does not - you are saying there is a way, maybe there is or the very

least you have to name the 14 traders in Barclays whose e-mails -

that would be a factor. Who is this? You have to have heads to

roll. There is no other answer. They don't seem to learn. We now

have this FSA findings on the swap, mis-selling, rather complicated.

The RBS statement, and it's my bank, it beggars belief. They say in the

case of a small number of less sophisticated systems who entered

into more complex swap products we have agreed to move directly to - I

mean... This is the essential point and why people are angry at a much

bigger level than thinking some of it is dodgy and that feels rum,

because going back over the period at the peak of the financial crisis

2007-8, there is now a feeling that the people who arguably were the

most responsible for this are the people who have been given immunity

from the economic consequences of it. So the whole bail out process

of the whole banking sector and then the subsequent recession and

you can argue about the causes of that as much as you like, but it

feels to a lot of people like a transfer of wealth from people at

the bottom to people at the top. People who caused it in the first

place. When you hear attitudes like that and see Bob Diamond and the

way he behaves the impunity that they seem to have at a sort of

level of justice when they might or might not have been committing acts

of fraud, sort of reflects the impunity they have, the immunity

they have. I didn't see Marie And toeupbet runs the RBS. If there was

one thing you could do if you were in power to help get the show back

on the road, what would that be? Looking at whether the regulatory,

needs to extend to areas like the LIBOR, but on the swap mis-selling

they have this this independent commission, they said

derequiretives - the Chancellor is still saying those should be in the

retail. I think another U-turn is beckoning. Surely not! I suspect so.

I can't believe it. Chris, thank you very much for being with us. So,

Germany not knocked out of the Euros, Rafael Nadal not Goked out

of women -- got knocked out of Wimbledon. Bob Diamond's still got

a job. Let's look at the week in 60 seconds.

Three times wasn't enough for the man who used to rule at Number 10.

Tony Blair would like to be PM again, but doesn't fancy his

chances of a comeback. In Northern Ireland, they were building bridges

with a handshake when the the Queen met former IRA commander, now

Deputy First Minister, Martin McGuinness. At Westminster, it was

time for another budget U-turn, this time on fuel backs -- tax. Who

knew what and when. The Junior Minister left us none the wiser.

When were you told? I have been involved in this for sometime and...

You didn't take the decision, obviously? The Chancellor and Prime

Minister did, when were you told? We had a collective discussion of

that... The policy we have all been waiting for has finally been

unveiled. Nick Clegg even took to his soap box to make the case for

Lords reform. This comes down to a really, really simple idea. It's

called democracy. He might have to shout louder to get the Tory

backbenches on side. OK, let's pick up on the back of

Nick Clegg there, how will Labour play this House of Lords reform?

They are in favour of a elected chamber but they're also the

opposition. They're divided over this. Ed Miliband's position is you

can see some clarity if you look hard enough, which is that they're

in favour of the principle of Lords reform so they'll vote at a second

reading of the bill, they'll let it go through if it gets that far. But

they are not - they want to have plenty of time in parliament to

fiddle with it, argue with it, they don't want to see it rushed through

quickly. The problem is that at least half of Labour MPs think that

this is really an opportunity to ideally cut Nick Clegg's head until

all the Lib Dems are curled up in the floor begging for mercy. They

should be getting that crowbar in and trying to prise them apart.

you add in what he is saying about the Labour attitude to the view on

the Tory backbenches where there is a huge rebellion brewing, you have

to wonder whether this is ever going to see the light of day.

Certainly there's nobody outside of parliament who cares a hoot about

this, which is another problem for Liberal Democrats. But they're

desperate to cling on to this. It's important. I think this issue is

the one that could break the coalition. It's another reason why

Labour is so interested in it. The Conservatives are really split.

David Cameron knows that he has to back Nick Clegg. The other issue,

fundamentally the idea of electing people from party lists on 15-year

terms, it's nonsense. That's no accountability. This is a register

for ex-politicians to sit around. That's the biggest problem the MPs

have, is you work hard as a MP and most do work quite hard and you

might get sacked every four or five years by the electorate. Are you

going to put up with some swaggering Senator turning up on

your patch saying I am here, I have a better democratic mandate for you

but I have a job for life as well or 15 years which in political

terms is life. The interesting thing that I found talking to

people around parliament about this, is that the Lib Dems are persuaded

that David Cameron has given Nick Clegg all the assurances possible

that he will whip his MPs behind this and they've looked them in the

whites of the eyes and the Conservative MPs are saying it's -

we can choose whether we like this or not. They say the whips speak to

them with fingers crossed. Thank you both for today. I am going to

be back on Sunday with the Sunday Politics at midday. I will be