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DERMOT MURNAGHAN:
Let’s get back to events in Brussels last week, David Cameron’s decision to veto the eurozone Stability Union Treaty means the UK can now only observe some crucial decisions being made in Brussels. 26 EU members agreed to a tax and budget pack to tackle the debt crisis but will those measures actually be enough to save the Euro and prevent the likes of Italy or Spain from defaulting on its debts? Well I am joined by the former Conservative Chancellor, Lord Lawson, the editor of the Economist, John Micklethwait, together with the Chair of the European Parliament’s Economic and Monetary Affairs Committee, Sharon Bowles. We ended there with you Sharon Bowles, let’s start with you, we know your views on what Mr Cameron did there, how does Britain get out of this in your book? How do we rebuild those bridges with Europe?

SHARON BOWLES:
I don't know, I’ve got to start doing it on Monday morning in negotiations so I am trying to actually calm down and concentrate on the realities of the nitty-gritty and obviously I’ll do that. We have got I think a big hurdle now, if you read some of the continental press, with some of the very senior MEPs, chairs of other committees and so forth, saying that basically the UK is going to be punished and squeezed out and treated badly. At this point in time, with so many financial dossiers, some of which are reaching near conclusion in negotiations, it couldn’t have happened at a worse time. If you had left it until March it might have been better but realistically they do blame some of the laissez-faire attitude of the City of London for being part of causing the sovereign debt, that is why the tension is so high and that is why protecting the City, which actually I don't think this protocol protected the City, it was trying to backtrack on some things we had previously agreed, but the rest of Europe actually thinks it needs protecting from the City of London.

DERMOT MURNAGHAN:
Just to stay with that broader point, stay with the politicians, Lord Lawson, this issue of the anger Sharon Bowles is talking about, irrespective of the precise reasons Mr Cameron did what he did, isn’t there a danger far from Britain being diminished with the European Union, the European Union saying look, we’re diminishing you, we’re pushing you out?

LORD LAWSON:
Well as far as the City is concerned, David Cameron is absolutely right to make the defence of the City of London, the banking and financial services industry which is located in this country, which is world class, which is bigger than the whole of the rest of the European Union put together and is very important, he was right to make that a crucial issue. It is crucial to Britain’s interests and such an important part of our economy and there were a whole lot of damaging proposals being made and more to come. There is nobody who has been more critical of the behaviour of a number of bankers, not just in this country but around the world, in recent years but that doesn’t alter the fact that banking and financial services are of huge importance to the world economy and of huge importance to Britain so he was absolutely right.

DERMOT MURNAGHAN:
But there is this question, it has been raised earlier on this programme, it is in many of the papers as well, does it actually protect the City of London?

LORD LAWSON:
No, it doesn’t protect us at all, absolutely, but the point is it’s a stage. First of all, we will refuse to sign up to the Financial Transaction tax, the so-called Tobin tax and if they try and get round the Union Liberty Rule on this they will be taken to court. Secondly, there are a whole lot of other things which might be very damaging to the City which could be done by Qualified Majority, there we have got to take a Gaullist line, as De Gaulle did in 1966, to say look this is so much in Britain’s fundamental interests that we cannot accept it, I’m terribly sorry.

DERMOT MURNAGHAN:
John Micklethwait, it seems that relations can only get worse.

PHILIP HAMMOND:
Well I’ll split the difference between the two of them, I totally disagree with Sharon on the idea that there is something wrong with the City in terms of its laissez-faire, that this is somehow responsible for what has happened. Europe has a sovereign debt crisis caused by government spending too much and that is really nothing to do with the City. I think Nigel is right, that Cameron was right to oppose this but the way he did it, where you end up with 26 on one side and one on the other, I think that is a very, very poisonous way to start things and it is going to be very difficult because if we have to fight on Qualified Majority Voting, that is going to be very, very much more difficult now than it was.

DERMOT MURNAGHAN:
Just on that issue of influence, we started with this, there are those that are saying oh well, forget about Europe, there’s always America but of course the Americans want to talk to the big players in Europe don’t they?

JOHN MICKELTHWAIT:
I think the Americans have two interests, one, they do see a sense of common purpose with Britain to some extent but by the same token they also see us as a way in to Europe. If you go and see the people in the White House, they always ask you about exactly how Britain and Europe is getting on, that’s what we’re there for to some extent.

LORD LAWSON:
I don't think we should be too parochial, Britain is a world class player in financial services, the Americans will always want to be dealing with us and talking to us about that and some other things too, the military field and so on, but what this was about, this meeting, was about saving the euro.

DERMOT MURNAGHAN:
I was going to get on to that, thank you for raising it.

LORD LAWSON:
The eurozone is doomed and it is no surprise, as far back, I’ll remind you of this, you are very young, but I think it was January 25th 1989 when it was just about to come in, it hadn’t come in then and I gave a big speech as Chancellor of the Exchequer at Chatham House in London explaining exactly what the flaw was at the heart of this project, which of course was never an economic project, it was always a political project, that was part of the problem with it. They didn’t think through the economics, they thought it was a way to get a United States of Europe, a politically integrated Europe. Anyhow, I pointed out why it was flawed and why it wouldn’t work and that is how it has fallen out and this agreement has not convinced …

DERMOT MURNAGHAN:
All right, Sharon Bowles, do you think, this was meant to be as Lord Lawson has correctly identified, this was meant to be the issue at this summit, saving the eurozone.

SHARON BOWLES:
I think the whole thing is intertwined and you have to look at it from the perspective of those countries in the euro that feel completely threatened and I didn’t say that I thought the City was to blame, I did point out that that’s how they perceive it and when you are negotiating you have to negotiate from the point of view of other people’s perceptions as well, especially in Europe. I think they did as much as they could with what was on the table in the sense of increasing the amount of money that was available, bringing in the IMF which was a potential bazooka for the rescue, for buying bonds and so forth, so those were things that the UK had actually argued for as well and now they’re there. The additional disciplines and behaving themselves over budget, that is a kind of land mass that we’ve got to land on. We’re swimming in the ocean at the moment and you’ve got to have somewhere where the markets can see where there is hard ground that they get to and that is a very important part of it and they have done that. The question really is, have we got enough of a lifeboat to get us to the land mass?

DERMOT MURNAGHAN:
John Micklethwait, I was talking to Ken Rogoff, formerly of the IMF and now at Harvard University and he was saying, well we overuse the phrase kicking the can down the road but they gave it a massive boot here because in actual fact, until they bite the bullet and say the ECB has to play that lender role …

SHARON BOWLES:
But we have effectively vetoed that because we said we can’t go down the Treaty route so we have vetoed the ECB intervention.

JOHN MICKLETHWAIT:
The ECB can come in, there are two very simple things that have to happen at one time. I disagree with Nigel to some extent, I still do think it is possible to pull it out, one has to say that he has been right all the way through because they have not so far, they have kept on kicking it down the road. They need two things, they need firstly the ECB to come in with a bazooka, they also need some kind of mechanism which will keep the Germans and the other sides together and I think that has to involve now some form of joint debt issuance. Why? Because if you do that, you give a carrot to the people who a lot, that they have something that they get through, they are allowed to issue common euro bonds.

DERMOT MURNAGHAN:
But what about this idea that we really, really, really mean it this time, that if you break the rules you will be punished? That was why it was there 22 years ago and they were ignored.

JOHN MICKLETHWAIT:
That’s why I think the debts are important. If you can say to people, if you behave yourself yes, you can be part of this euro bond mechanism, if you don’t then you are pushed out and all this stuff about European Courts of Justice coming in retrospectively to find people, that was the same mess which we started with which Nigel was rude about. It needs a different structure and that is very, very politically difficult.

DERMOT MURNAGHAN:
But just on this, could Britain, could Mr Cameron, I mean I think someone in the City said it the other day, as one of the passengers who decided not to get on board the Titanic?

LORD LAWSON:
Absolutely, it was a disaster, the eurozone and a number of us predicted, I wasn’t the only one, a number of us predicted it but they went ahead. We were quite right not to go. When I made my speech incidentally, my purpose was not to stop Britain joining, I never thought we would join it, my purpose was to stop our European friends and partners from going down this disastrous route but anyhow they did it and it is now absolutely clear I think to everybody that you cannot make it work unless you have really a European Finance Ministry and a European Finance Minister and that is a step further than most of the people in Europe, I know France quite well, my main home is in France now, most of the peoples of Europe are not prepared to go that way so it is not on. Meanwhile we have to put the fire out and what has not been mentioned yet, which is the main issue that concerns me most economically, is a banking meltdown. There is a real danger of that and we know from happened in 2008-2010 how damaging a banking meltdown can be but there is a lot of confusion over the European Central Bank as a lender of last resort. The role of the European Central Bank is as a lender of last resort to the banks to avert the worst consequences of a banking crisis, it should never be a lender to the government. It is a European Stability Fund and behind that the IMF which has to be the lender to governments.

DERMOT MURNAGHAN:
I just want to ask you this, Sharon Bowles, because Lord Lawson mentioned about democracy, what price democracy in terms of the Liberal Democrats here? Can the Liberal Democrats stay in a coalition when their European policy has been shot down in flames?

SHARON BOWLES:
I think there are certain aspects of it that are very difficult and right now I don't think it would be a good idea to have a general election because I don't think that would be very good for the UKs bond market and that would be unfortunate but I think this is very, very profound indeed. We will see the consequences rolling out over the next few months so then we’ll be able to analyse it, was it a bad move but whether we can back off from it in Europe I don't know but answering to what has been said about the ECB, the ECB has stepped in as lender of last resort to the banks with up to three year liquidity programmes now, so the ECB is doing quite a lot and I agree with you, it shouldn’t really lend to governments but we’ve also got lots of sins in our financial regulations that have exacerbated this and we should really be in there trying to straighten these things.

DERMOT MURNAGHAN:
We are running out of time, I just want to hear very briefly from John Micklethwait, this idea I put to Lord Lawson, that if there really are terrible financial and economic problems waiting out there, particularly from the eurozone, okay it would obviously affect us but isn’t it better to be doing it from the position that Mr Cameron has put us in?

JOHN MICKLETHWAIT:
I think that is where the question will come. Straightforwardly if the eurozone gets into trouble well our economy is in terrible shape, but there is that question about if you are trying to redesign the Europe of the future, then if there is one empty seat around the table – and to be fair to Angela Merkel I think a bit of her still desperately wants to get the British in there because she does understand the need for liberal Anglo-Saxon thought in it, and without that I think the single market will be a disaster.

DERMOT MURNAGHAN:
Okay, we must end it there, thank you all very much indeed for those profound thoughts, Sharon Bowles, John Micklethwait and Lord Lawson.