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Maria S. Topalova

Andrea Leadsom is a Conservative Member of the British Parliament. In her biography, she has 25 years of experience in financial markets. She graduated from the University of Warwick. She was Financial Institutions Director at the biggest bank of Britain - Barclays Bank, then she was Managing Director of her own hedge fund in London. Andrea Leadsom is a firm supporter of British Prime Minister David Cameron; she is a Member of the Treasury Select Committee. She is a representative of the group of conservative lawmakers united under the name Fresh Start Project.

What lies behind the name?

The name is because over the years the Conservative Party has had many problems internally over the subject with the European Union and particularly in the 1990s the party really split over Europe. Someone has had to leave, someone has had to renegotiate, someone has had to stay in and integrate further in joining the Euro. So, there is a bad history with the Euro. So, the reason for calling it Fresh Start Project is because we want to look at this completely differently and we are going forward. And particularly what we want to do is to analyze exactly what each policy area does for Britain. The harm it does, the benefits it gives us, to assess the way that we could improve that relationship and then also to look at the precise way in which we could repatriate powers if we wanted to do so. 

What is the overview so far? You said you should take into account the benefits and the harms.

We have only so far started one piece of work and that is to look at European Union social policy, including employment legislation, health and safety and social policy. And what we have found is that there are some big disadvantages to Britain particularly with the working time directive. And maybe when we finish up the project we will conclude that Britain should renegotiate that part of European Union social policy. On the other side, we have also considered that some of the health and safety legislation is very good for Britain, because we already have very high standards of health and safety.  So, regarding the legislation that has been introduced, we already meet the standard and so it is good if the rest of Europe comes up to that standard. So, by looking at the detail, we can see where the real benefits are and where the real costs are. So, instead of just a general conversation about repatriating powers, we can be very specific about what is good for Britain and what isn’t so good.

What kind of powers do you want to see returned to London?

Well, we will not really know that until we complete the project next summer. So, what we have are meetings roughly every three weeks, looking at a different area of European Union policy. On Monday next week we will be looking at financial services, European Union financial services legislation and then, three weeks later, we will be looking at structural funds, and then in the new year, we will be looking at the agricultural policy, the fisheries policy, the human rights and justice policies and so on. So, every few weeks, we look at a different area. So, as we go along, we draw some conclusions about particular policies but it won’t be until we get to next summer that we really conclude so, this is where we should focus our efforts or that’s where we should focus our efforts. We cannot really decide until we finish everything. 

How strong are anti-European forces in Britain and what are their social balances?

Well, there is a large minority of voters in Britain who would like us to leave the European Union, mainly because they believe that there is no possibility of renegotiating for a trade-related organization that can simply create a free trade area within Europe. They feel it has gone too far and that it is impossible to try to restructure the European Union to make it more responsive to the trade needs. And so, those people argue that we should just leave. And there is a group called “better off out” which has quite a lot of support from voters.

In Parliament, however, we have a huge number of people who are interested in this project, because they do see it as the possibility of us creating the environment for a restructuring of the European Union and particularly with the Eurozone crisis. We think that will be the potential for looking again at the European Union problems and trying to make it more fit for the 21^st century.  And I think what is very important is that we have a legislation that has been in place in Britain since 1975 and yet nothing has ever changed. You know, it has always been more and more legislation.

We have never, as individual member states, been able to say actually what worked for us 35 years ago is no longer good for Britain. We want to now remove that piece of legislation. In every government, in Bulgaria, in Britain, in every European Union member when we change our government, the government looks again at what works for that country, what is in the interest of the people. And they are able to change things, to reform things but not so with the European Union and it is just stupid. The European Union cannot survive unless it is willing to change with the times. We cannot have a situation like we have now, where potentially in another 50 years time we are still having legislation that we implemented in 1965. It is just ridiculous. We must be able to reform.

The British Prime Minister said very clearly that the European Union is an organization in peril representing a continent in trouble. How serious is this peril and how dangerous is this trouble?

I think the Eurozone faces an existential crisis. So, my own view is that it is impossible now for the Eurozone to come out of this situation with no permanent damage. It is the market. It cannot now turn back the clock because of the failure of the Eurozone to give the confidence to the markets that they will underwrite each other’s fiscal problems. So , the markets are now looking at each individual country as a credit risk in its own right. And it will be almost impossible for the Eurozone to reverse that trend and so, I think that it’s almost certain that one or more countries will leave the Eurozone and they may have to be a group that travels all alone with their currency. Otherwise, I fear that there will be a disorderly break-up where we have a severe banking crisis and sovereigns in Europe will be unable to afford to bail them out a second time.

So, Britain must be very proud with its decision not to use the single European currency.

We do not talk about it too much but, of course, we are relieved. Britain has one of the highest GDP-debt ratios in Western Europe and if we did not have sterling, we would have been in a similar situation to Greece and Italy. Because we have our sterling currency, our currency has been able to devalue by up to 25% since the financial crisis. And that has got our economy afloat. And it is a great sadness to me that for countries like Greece and potentially Spain and Italy and Portugal, they are unable to use one of the major tools that most countries have to be able to solve their problems and that is their currency. So, I think, as I say, it is going to be impossible to escape from this crisis with no permanent damage to the Eurozone.

You said that it is almost certain that one or more countries will leave the Eurozone and you are probably focussing on Greece as one. Do you have any explanation why Greece and the other countries from the south are not capable of implementing the necessary reforms to stabilize their financial system?

Yes, certainly. I mean they have massive debts. They do not have the institutional structures to be able for example in Greece’s case to raise taxation. So, they literally can’t collect their taxes. Their tax collection system is not good enough. They have big problems with corruption, with tax avoidance. They have enormous problems with public sector, early retirement – the retirement age has been as young as 55 years old, when Germany’s is 66 already. And so, it is extraordinarily difficult to get from where you are today to a package of such extreme austerity. But in the end, I think many voters in Greece are thinking „let’s just leave, nothing can be this bad”. I actually think they are wrong. I think it would be worse if they leave the Euro but nevertheless, it is very difficult for them to implement, because they physically cannot make it happen, these packages of austerity.

If we draw a parallel between Ireland and Greece although the crises are different, why is Ireland more successful in implementing the reforms? The Greeks have done a lot of work as well but they are not making any progress.

That is a really interesting question and there must be something cultural in it. The Irish are in a very different fiscal position and yet there people seem to be resolved to solving the problem much as Britain is. And they seem to be determined whatever the cost to them that they will go through the pain in order to come out to the other side. And all credit to them and actually even though Britain is not in the Euro, there is still a confidence issue about how determined we are to implement our austerity package. And I think Ireland finds itself in this similar position to us, which is that because we have said from day one “we will do this” and because our institutions to collect taxes, to impose pay restraint and so on, because those institutions are strong, the markets have the confidence that we will actually be able to do it. I think that is the big difference between us and southern European countries, where we are actually able to do it and we have been very persuasive in telling the markets that this is what we intend to do. And in southern Europe, there just isn’t that level of confidence.

Do you see any possibility for a new country joining the Eurozone?

Absolutely yes, I mean in future times. I suspect no country would wish to join the Eurozone right now, because it would be a huge liability potentially for that country. But, yes, I can see in the future that it may be possible to do so again. But I have always thought  - I was in financial markets and investment banking when Britain left the ERM and I was also there when the single currency was formed – and I have always thought at the time it is impossible to have money in a union without a fiscal union. That I think is going to be the key challenge for the Eurozone. They are going to have to move to a fiscal union, because it is impossible to have one member state with a strong manufacturing economy, exporting as Germany does, and with a late retirement age at 66, with very strong ability to raise taxes and so on versus a country in Southern Europe that has a very young retirement age, very loose fiscal policy and inability to collect taxes and so on. You simply cannot have those differences in your civil structures. So, you need to have a much closer integration in order for the Euro to be a successful currency.  

The solutions that are under consideration right now, the issue of Eurobonds, tax on bank transactions, common tax policy, creating an administrative institution like a financial ministry of the European Union,  how effective could they be in solving all these problems?

Well, in the end, what makes a sovereign risk undoubted is the lender of last resort. And in the Eurozone, the European Central Bank is not the lender of last resort. And the Germans seem determined not to allow the ECB to be the lender of last resort. And unless you have that, then lenders to the countries that are members of the Eurozone simply do not have the confidence that whatever happens they will be repaid. So, actually, while this sort, you know, fiddling about is helpful to market confidence, it is not going to solve the fundamental problem, which is that if you have a sovereign, which the Euro is trying to be, then you need to have the ability to have the lender of last resort that will always ensure you meet your obligations. And until they have that, they will not solve this problem.

Could the issue of Eurobonds be the solution to the crisis?

Well, it could if those Eurobonds were unlimited and guaranteed by all member states. That would be the effect of the lender of last resort but that would not be the case. Each country that issued Eurobonds would have a ceiling and of course, for those that are most indebted that ceiling would not be enough. So, it only delays the problem. It does not solve it.

There are many strikes all over Europe mainly against the pension reform but in Greece, in Spain, in Portugal in general against the reforms for the financial stability. How strong are European governments to implement the reforms no matter what the public resistance?

In the end, if they do not, then Europe’s time is over. We had the decline of the Roman Empire, we had the decline of the Chinese Empire and it would be the decline of the Western Empire unless we implement those reforms. There is no doubt about that. China, Brazil, Russia, India, their GDP is growing very fast; their economies are growing fast. We have passive trading balances, huge net services, we have huge trade deficits. Unless we are willing to solve this now, then our time is finished and we are destroying our children’s future. So, for my part, we have absolutely no choice other than to go ahead and to ensure that we create a sustainable future for our children.

Britain has supported the enlargement of the European Union. Now the enlargement seems a little bit stopped. How do you see the future of this process?

Well, actually, just last week we voted to commit Croatia to accede to the European Union. You know, Britain, under this government, is very keen to see an enlargement of the European Union and we believe that the trade possibilities are very good and that we should continue to increase that group of trading nations. Obviously, there need to be checks in balances and particularly, around free movement of labour and the issue over human rights and justice. And in fact, next week in Parliament we will be discussing the European arrest warrant, because we have some big concerns in Britain that the arrest of British citizens in some Eurozone countries has been unfair and they have been subjected to very bad treatment, unjustly and subsequently they have been found to be innocent. So, there are some concerns in this country about some of those laws. However, we do believe as a trading nation that the bigger the European Union trading area, the better it is for all of those who are within it. So, we continue to support that. Well, again, there are certain standards that any country that wishes to accede to the European Union must abide by. And for the Balkans, I think that it offers a huge opportunity for them to put that terrible past behind them and to move forward in step with the European Union, embracing the principles of freedom and democracy and free speech and human rights. And so, in order to be in that position, they need to make certain reforms.