It is a convenient myth of democratic politics that we elect people who know what they are doing. We don’t. We elect people who look good, can raise a lot of campaign funds and sound plausible. They might be good; then again they might be smooth talking scoundrels like Tony Blair who, it has emerged, made several trips to Libya after he left office to help Col Gadaffi with his investment plans. Nice of him.
Then there is the priapic Silvio Berlusconi, a walking disaster area, whose inability to keep his zip fastened is matched only by his skills at economic management. He reportedly called the German Chancellor, Angela Merkell, an “Unf@@@able lardarse” which is probably mild compared to what she calls him. Unfortunately for the bunga bunga man, Italy looks like being the latest casualty of the rolling sovereign debt crisis, following its credit downgrade, and will be seeking financial help from the lardarse herself. Then Silvio will be F@@@ed.
Meanwhile time is running out for Greece which is being called upon to make 100,000 public sector workers redundant in order to qualify for more loan money from the ECB and the IMF next week. Greece is in a death spiral. The very austerity measures being introduced to addess the debt crisis is making it more difficult to pay them because tax revenues are evaporating even as the interest on Greek debt is increasing. There is a very real possibility of civil unrest making Greece ungovernable.
If Italy falls into the same state, it won’t be the euro that is the first to suffer, but the entire global economy. Banks in countries like France, Britain and America would go bust if they had to write down the value of their dud loans.
What happens then? Well, no one really knows. Perhaps nothing, and Greece, Portugal and Italy will simply default on their loans. No one will lend to them again for a while, but they could probably cope with that, even staying within the eurozone. The bigger risk might be to the banks that hold Greek debt, like our own RBS, who might be plunged into a renewed solvency crisis – though one hopes that even our feral bankers have at least got their biggest risks covered.
Gordon Brown told the World Economic Forum last week that the present economic crisis is more serious than 2008, and that if the international community doesn’t get its economic act together, we could be back to the 1930s. He foresees a prolonged economic slump, mass unemployment and a lapse into protectionism between nations. This warning seems all too credible from a politician who, whatever his personal failings, was renowned for his grasp of economics and finance.
But there is one big difference between today and the 1930s: dissent, or rather the lack of it. In the Great Depression there were industrial organisations, political parties and socialist intellectuals who had a clear vision for resolving capitalism’s crisis. The trades unions, the Labour and Communist Parties and influential thinkers from John Maynard Keynes to Leon Trotsky, were all in various ways, committed to challenging the assumptions of the financial power elite, and urging the creation of a fairer society and international cooperation.
The very existence of an alternative economic model forced industrialists and financiers to accept high taxation and direction of industry in Roosevelt’s New Deal. It led to remarkable achievements in international co-operation such as the Bretton Woods Agreement in 1944 that created the International Monetary Fund and laid the groundwork for the post war boom. Fear of Communism also prompted the Marshall Plan after World War 2, in which America financed the economic recovery of Europe.
The financial power elite has no such fears today. The socialist movement has been replaced by think tanks that broadly support the economic status quo. The communist political parties have mostly gone into the dustbin of history, and the British Labour Party, like most social democratic organisations, has long since abandoned any ideas of changing society. Indeed, Gordon Brown, introduced the very “light touch” regulation that turned the City of London into the international capital of casino banking.
Some politicians, like the Liberal Democrat industry minister, Vince Cable, were highly critical of the City and the banks’ lending practices. But he was very much a lone voice, and his voice has become more muted still since his party entered coalition with the Conservatives. Cable may indeed veto attempts by the Chancellor, George Osborne, to abolish the 50p tax band on incomes over £150,000, and he may have prompted the Vickers Report last week that called for a division between investment banking and retail banking. However, his presence in the Cabinet hardly represents a threat to the capitalist system.
The trades unions are promising a Winter of Discontent, but they are very much weaker than in the 1970s, and seem to have become narrowly focussed on the immediate interests of their membership. The wave of strikes that is planned for next month is not about challenging the system, but defending the pension privileges of certain public sector workers. Demonstrations against cuts, like those organised by the young activists of Uncut, are sporadic and disconnected and easily dismissed by government.
Yet, it is clear what needs to be done. At the very least, the international community must act to tame the beast of globalisation by controlling and regulating the international activities of the banks, closing down tax havens and taxing short term currency movements to prevent countries being ambushed by financial speculators. Governments need to introduce growth and job creating policies to mitigate the impact of deficit reduction. They must increase taxes on the wealthy and level income inequalities, so that middle class families can spend again in the high streets. The countries of the eurozone must create political and fiscal institutions to match the currency union, and the European Central Bank must issue bonds, backed by all, which is the only way to prevent sovereign debt crises in countries like Greece spreading to Italy, Spain and even Britain.
This may seem a tall order. But what is the alternative? If the eurozone collapses, there will be a global slump that will make 2008 look like a blip. Banks would stop lending, and international trade would grind to a halt. Britain cannot remain isolated from this because our own banks stand to make huge losses from any Greek default. It was the failure properly to regulate the banks after 2008 that has led to this crisis. Instead of reforming the “feral bankers”, governments took on their losses, socialised the debt, and are now themselves becoming insolvent one by one. The only way out of this is a new financial system based on international cooperation and regulation. Time is running out. And the alternative doesn’t bear thinking about.