Bill Cash: In these times of austerity, we should not be bailing out failed EU economies

The Wall Street Journal reports on an interview with Hans-Werner Sinn, the German economist, who has said the bailout of Portugal could become a “bottomless pit” for euro-zone states, and that the crisis risks spreading to Spain because of local banks’ involvement in Portugal.

Britain must not be exposed to this mess under the European Financial Stabilisation Mechanism – which Alistair Darling should never have agreed and the coalition should have never endorsed. The coalition Government must take action now as I argue below.

It is also an issue that Hans-Werner Sinn argues that Germany’s government is likely to lose much of the “several hundreds of billions of euros” it has provided to struggling peripheral eurozone states through European Union and International Monetary Fund rescue packages, as well as European Central Bank policies.

Germany also has constitutional complaints going through the German Constitutional Court on the issue of the EU bailouts – particularly the use of the European Financial Stability Facility and the European Financial Stabilisation Mechanism (the Mechanism being what exposes Britain as a non-eurozone member).

It is even being argued that the bailout package is not compatible with EMU rules. Taking into account that the issues concern interpretation of the Treaty and validity of EU law, it seems that the German Constitutional Court may have no choice but to ask the European Court of Justice for a preliminary ruling on the legal situation underpinning the bailouts.

In the meantime, Moody’s cut Ireland’s sovereign rating by two notches (which Reuters reports as on “the verge of junk status”) and kept its outlook on negative, adding to renewed pressure on the eurozone’s buckling countries.

What was interesting is that Moody’s said the downgrade to BAA3 from BAA1, or two notches, was partly due to uncertainty around solvency tests required by the European Stabilisation Mechanism (ESM).

With David Cameron already in bilateral talks with Enda Kenny, the Irish Taoiseach this week, the now is the time for the Prime Minister to back a legal challenge to the bailout mechanism under Article 122, which the European Scrutiny Committee of which I am chairman, has described as “legally unsound”.

As I write, I have read in the Observer that the Chancellor would like to repeal the infamous Article 122 only after a Portuguese deal is done – but this must be dealt with now as the crisis is facing Britain now and no government should ever have exposed British taxpayers to eurozone bailout arrangements.

It is all very well the Government talking about it and suggesting “repeal”, but this should have been properly dealt with. When the new EU bailout mechanism required a Treaty which they claimed would not affect the UK – and which I and other MPs opposed in the House of Commons – that was the moment to use the veto to prevent that Treaty from going through unless they took Britain out of the European Financial Stability Mechanism which continues in force until 2013.

This opportunity was lost and, therefore, it is ironic to read that the Chancellor is now proposing to seek to repeal Article 122 after the horse has bolted. In the circumstances it being substantially clear that the Member States were not prepared to repeal the Mechanism – and Britain was certainly not prepared to veto these arrangements – they have left Britain exposed to the Portuguese situation and beyond.

The situation has now become so serious that the British Parliament should override these arrangements using its sovereignty and the “Notwithstanding” formula which I have long proposed, should be used – because it is clear we are being taken for a ride.

There are also ongoing reports now that in Finland, the True Finns party, which opposes further euro-zone bailouts, has seen its share of the vote rising to 19 per cent. The centre-right National Coalition narrowly won with 20.4 per cent of the final vote but the True Finns made the biggest election gains of any party which means they are likely to be involved in talks on forming a government. The Social Democrats, who came in second place, are also known to be critical of a bailout deal. It was, therefore, a primary election issue in Finland and we may see their coalition government actively opposing the bailouts. On Greece, we also hear that German Finance Minister Wolfgang Schaeuble is saying that Greece may need to renegotiate its debt burden. There have also been papers recently released showing that Greece told the European Union earlier this month that it wants to restructure its debt.

As one would expect, nobody in the European institutions wants to talk about Greek debt or the underlying issue of failed eurozone policies or the failed Stability and Growth Pact and its creation of unaffordable debts within the regime – but Britain must break the silence and deal head on with the unlawfulness of the bailout regime, which taxpayers should never have been exposed to.

In these difficult economic times, Britain is said to be pursuing its own austerity agenda. In reality, we are bailing out Greece, Ireland and Portugal. With the Irish economy in further crisis, German citizens bringing forward constitutional legal action against the bailouts and Finland supporting anti-bailout parties in the elections, the Government must wake up and repeal the mechanism which exposes British taxpayers.

Bill Cash is a Conservative MP.