Earlier today I spoke at a session on the Economy and Growth at The House Magazine's Coming Year in Parliament Conference. The focus of my speech was on the Eurozone, building confidence for business and why we need to focus on long term growth now. You can read the full speech below: Any discussion on growth and prosperity in Britain must include the problems in the Eurozone. For they imply not only the loss of demand for our exports, or the risk of contagion to our banks – but a crippling uncertainty for UK businesses who might otherwise invest. Yet the solution to the Eurozone's problems have always been clear: a big enough firewall, well capitalised banks, a system of fiscal burden sharing and a monetary policy that supports the entire Eurozone. We’ve had summit after summit, acronym after acronym for firewall funds, yet still the firewalls in place would struggle to bail out the Spanish economy, rather than just its banks. Then there’s sharing the fiscal burden. Every successful currency union on record has been accompanied by some degree of fiscal union. Within a country we take it for granted that richer areas will subsidise places with weaker private sectors or slower growth. But for this to happen there has to be political will, backed up by popular consent. People must feel that the gains of union justify the fiscal transfers needed to keep that union going. The founding of Great Britain in 1707 stands as one of the most successful currency unions in history. It works because the English people know that the ingenuity and enterprise which Scotland brings to our union are prizes worth paying for. Yet in the Eurozone, governments have not been honest with their people about either the costs or the benefits of monetary union. This week the Chancellor asked if it would take a Greek Exit for the German Government to level with it’s citizens. But with the Bundesbank holding 700bn Euros worth of IOUs from Eurozone central banks I do not believe that Germany will let Greece leave the Euro. They will ultimately have to face up to the remorseless logic that monetary union must lead to greater fiscal integration. But Until that happens, uncertainty in the Eurozone will continue to hurt us here at home. Why? Because growth is all about confidence. Businesses will only take on new staff, invest in their business and grow, if they feel optimistic about the future. In the past the solution to a slump in confidence was a fiscal stimulus - dump borrowed money into the economy in the gamble that the multiplier is high enough to outpace the higher costs of servicing that debt. But today the size of our debt is so great that any gains from a stimulus would be more than offset by the higher borrowing costs caused by the loss of our fiscal credibility. But is there an alternative? An under-reported fact in the access to finance debate is that businesses, large and small, are currently sat on £745bn of cash. Many businesses have no need to go to a bank for growth capital. That £745bn is close to 50% of GDP. If we could get them to invest even 10% of that over the next year then we’d see a private sector stimulus of roughly 5% of GDP. And not every business is standing still. I visit businesses across my constituency every week, and what I hear consistently is that they are expanding and growing. Given that I am often left with a feeling that there's a disconnect between what’s going on in the real world and what we talk about within this bubble in Westminster. Our challenge in government must be to learn from those businesses and to help inspire all business with their levels of confidence. In my mind one of the biggest challenges for any business is the question of whether to take on new staff. Many businesses cannot grow without increasing staff, but if things change, the hire doesn’t work out, or the economic situation worsens it can be difficult and costly to let them go. I have firsthand experience of being an employer in other labour markets and admit that at first glance the US system appears brutal. An employer need only give an employee two weeks notice and they’re gone. But it works both ways and employees also need only give 2 weeks notice. When you’re in the same building as Facebook, but with a much smaller budget, I can tell you it’s pretty brutal from the employers point of view as well. Many column inches have been devoted to why the US economy is recovering quicker than ours, but I remain firmly of the belief that their flexible labour market gives them an edge. Germany is another example, it did all the hard work after it joined the Euro; reducing business regulation, exempting micro businesses from unfair dismissal rules, reforming welfare to make work pay, and ensuring tax rates encouraged business growth. Here in the UK we’re just starting that task, unpicking a decade of Labour’s enterprise-stifling regulation. In the area of employment, Vince Cable is proposing changes to dismissal rules with the introduction of Settlement Agreements and BIS is calling for evidence on no fault dismissal for micro businesses. At the same time we are slashing red-tape across the board. The Red-tape Challenge has crowd-sourced a critique of business regulation and of the 1,500 regulations examined to date the Government has agreed to abolish or reform 50% of them. And we’ve also committed to implement Lord Young’s Health and Safety recommendations in full. Of course it doesn’t matter if we don’t change the perceptions of employers and this is another area the Government needs to focus on. We have to get the message out there that in terms of red-tape things are not as bad as people think. Stimulus vs. a Growth Strategy Many people would call this a growth strategy but really it’s how we can deliver a short term stimulus in a world where there’s no money left. A real growth strategy is about how we deliver long term sustainable growth for the future. Such a strategy must recognise that we now compete with the best of the rest of world. When China creates an economy the size of Greece every three months it’s obvious where we need to be focusing our attentions. That is why I strongly welcome the use of the Queen’s speech to reaffirm our commitment to building strategic partnerships with the emerging powers. In a globally connected economy the UK has obvious advantages as a Global Hub. We are native speakers of the international language of business, we have a time-zone with a working day that overlaps that of countries from Brazil to New Zealand, and a legal system that is the envy of the world. But we must not be complacent about these advantages. It’s vital to continue with our focus on key transformational areas such as transport infrastructure and education. Michael Gove’s education reforms are one of the most important building blocks of our long term growth strategy. Thanks to reforms of the way schools operate, the national curriculum and our qualifications system, future generations of Britons will be able to compete on a truly global scale. Transport infrastructure is also vital, the Government’s commitment to HS2 is certainly welcome but when Paris and Frankfurt already have a thousand more flights a year to China’s largest cities than London, it’s clear we can’t wait 20 years for a new airport. And that is probably our most fundamental challenge for the next year. The fact that long term needs to be looked at now, it can’t wait. But at the same time we can’t lose sight of the short term need to stimulate our economy in the face of Eurozone problems.