HL Deb 21 July 1998 vol 592 cc712-4

3.5 p.m.

Lord Newby asked Her Majesty's Government:

What action they are taking, in conjunction with their European Union partners, to prevent a collapse of the Japanese currency and economy.

Lord McIntosh of Haringey

My Lords, the economic situation in Japan is clearly of great importance to the recovery in Asia and the world economy as a whole. The UK, with its G7 and EU partners, has been actively engaged with Japan offering advice and encouragement as it seeks to resolve its economic problems. The economic and financial situation was discussed by heads of state at the Asia-Europe meeting in London, at the Birmingham G8 summit and by EU Finance Ministers at the Cardiff European Council. Officials have participated in extensive discussions, most recently at a meeting in Tokyo on 20th June between G7 and Asian Finance Deputies.

Lord Newby

My Lords, I thank the Minister for his Answer. But does he agree with me that, despite the importance of the Japanese economy to British and European economies, our response has been pretty inadequate, particularly in relation to that of the US and China, not least because of Europe's preoccupation with preparations for the single currency? Does he further agree that the sooner the single currency is in operation, with Britain as a full participant, the sooner Europe will be able to punch its weight in international financial affairs?

Lord McIntosh of Haringey

No, my Lords, I would not agree that our response has been "pretty inadequate". Clearly, the United States has a particular interest, but we have been fully pulling our weight with our European partners. However, the fundamental fact is that we have no status to intervene with the Japanese economy any more than the Japanese have to intervene with ours.

Lord Dean of Beswick

My Lords, my noble friend said that we have been offering advice and assistance. But have the Japanese Government indicated any intention to abandon some of their disgraceful restrictive practices which over the years have prevented people like us from exporting more to Japan?

Lord McIntosh of Haringey

My Lords, I think my noble friend is referring to alleged restrictive practices of a considerable time ago. The difficulty with British exports to Japan is much more in relation to the ability of the Japanese to pay rather than restrictive practices.

Lord Moynihan

My Lords, given that Japan has the second largest economy in the world, that its foreign exchange reserves stand at more than 200 billion dollars, that its personal savings are around 10 trillion dollars and that eight of the world's largest 15 banks are Japanese, does the Minister agree with Chancellor Kohl's assessment that, if Asia is ailing now, then Europe will be ailing tomorrow?

Lord McIntosh of Haringey

My Lords, I can broadly confirm the accuracy of the noble Lord's figures about the Japanese economy. Our immediate concern with the Japanese economy is not about its overall strength. Even pessimistic forecasters are looking to a decline of only 0.9 per cent. this year and some increase next year. Our particular concern has to be with the stability of the Japanese financial system and, as the noble Lord rightly said, the importance it has in world financial markets. That is the crux of our concerns.

Lord Grenfell

My Lords, does my noble friend agree that while we talk about what the rest of the world can do to help Japan, in fact what needs to be done is for the Japanese themselves to sort out their financial system? We have given them great encouragement to do so. When a new Prime Minister has been appointed, we hope that the new government will do that. Does my noble friend agree that in the end everything will depend on whether the Japanese Government have the courage to take some very tough decisions, which they must take? Otherwise any assistance from the rest of the world will be meaningless.

Lord McIntosh of Haringey

My Lords, my noble friend is right, as I indicated in the answer I have just given to the noble Lord, Lord Moynihan. We have welcomed the "Comprehensive plan for financial restructuring" which the Hashimoto Government introduced earlier on this month. We have welcomed the "bridge-bank" plan which will help to ensure that the collapse of one bank does not bring about the collapse of others. My noble friend is right in that we need credible and rapid action. As the Chancellor of the Exchequer said on 3rd July, We look forward to the speedy implementation of these measures, and the steps necessary to restore the health of the financial sector and stimulate demand. This will be vital for sustained economic recovery in Japan and Asia as a whole".

Lord Razzall

My Lords, following up the answer which the Minister just gave, will he confirm what I believe he said; namely, that he agrees with the view of every economist that I have read which indicates that the one thing that is necessary in Japan above everything is a significant boost to demand—probably by significant tax cuts? Does my noble friend agree that the financial world is very mystified as to why that is not happening? Does he further agree that that is what should happen and that the Government will press the Japanese Government to do that?

Lord McIntosh of Haringey

My Lords, I agree very strongly with the noble Lord. What is needed in Japan is good, old Keynesian counter-cyclical measures. Perhaps one of the problems that the Japanese have is too much devotion to monetarist heresy.

Lord Stoddart of Swindon

My Lords, is my noble friend aware that I, and I am sure a number of people, agree with him that the Japanese must deal with their economy themselves? It depends on their psyche, traditions and so on. Does he agree that if the single currency led to a recession—as it may very well do if the strict Maastricht criteria were applied—that would do enormous damage not only to the Japanese economy but to the economies of Europe and the world?

Lord McIntosh of Haringey

My Lords, I disagree with my noble friend as strongly as I disagreed with the contrary view expressed by the noble Lord, Lord Newby.

Lord Barnett

My Lords, I agree with what my noble friend has just said, but does he believe that the Chancellor of the Exchequer will agree with what my noble friend said a few moments ago?

Lord McIntosh of Haringey

My Lords, about Keynesian counter-cyclical policy? Yes, indeed.