Q345 Jesse Norman: Chancellor, just to persist with Cyprus a little bit, are you absolutely comfortable that other nations were not aware of the Cyprus situation? It must have been in negotiation with its creditors for some time. That being the case, isn’t it true that the plan that was hatched is not just a Cypriot plan; it was a shared plan, and therefore there is a genuine risk that the cat has been let out of the bag over depositors?
Mr Osborne: We were aware, as were other countries, including those in the eurozone, that there was talk of bailing in depositors. Indeed, there was open speculation in the newspapers, and this had been talked about for several months.
Q346 Jesse Norman: Do you think there is a template here for how the eurozone is going to be treating other countries now?
Mr Osborne: Each of the eurozone bailouts has been different in character to reflect the different nature of the economies and the economic problems. Cyprus has a banking problem, Spain has had a competiveness problem and so on, so they have had different solutions for different problems, but I think it is clearly the case that we all would have been better served over the last couple of years if the eurozone had moved more swiftly to deal with its problems and been more confident in dealing with them. It has been a painstakingly slow process. and unfortunately the British people and many other countries have suffered as a result.
Q347 Jesse Norman: States like Luxembourg and Malta are also very highly leveraged and therefore potentially exposed within the eurozone.
Mr Osborne: I don’t want to comment on individual countries. What I would say with Cyprus is we have known for some time, well over a year, that this has been a problem, and again one of the frustrating features of this is that it was a well-identified problem a long time in the making and that attempts to resolve it did not work. I think it is fair to say that the previous Cypriot President had proved an obstacle to some of the solutions, and so they had to wait for a new Cypriot President, who only took office a couple of weeks ago and had quite a honeymoon.
Q348 Jesse Norman: They have now imposed capital controls on the flow of euros within Cyprus and out of Cyprus. Do you think it undermines the euro as a monetary project now that you can’t exchange euros across a single monetary zone?
Mr Osborne: In effect, they have had capital controls because their banks have been shut for some time now. Historically, this is one of the longest periods of bank closures ever in any place. The European Treaty provides for capital controls, so I don’t think we have a question about the legality. I think we do have a question about how this is done. If it needs to be done, we would like it to be done in as short, as temporary and as limited a fashion as possible. If it could be done without serious capital controls, I think that would be better, but obviously that is a judgment for the people on the ground, because the imposition of capital controls in a single currency is quite a moment.
Q349 Jesse Norman: The final question is for Sir Nicholas. Are you comfortable that you are managing potential exposure in these other states that are at risk from a similar kind of eurozone bailout: Luxembourg, Malta ... France ...
Sir Nicholas Macpherson: We keep our position in relation to all these countries under review. We have been doing contingency planning, as I think the Chancellor announced some time ago, about potential outcomes in the eurozone, and one of our main focuses is on exposure either through the banking system or through other mechanisms.