Skip to main content

Playing the blame game as economic recovery is delayed again

As the economic crisis of the West grinds on, I find myself noting that the mistakes of policy are more and more political mistakes, and that the failures of leadership are more and more failures of political leadership.  Attempting to create a safer banking system by forcing increases in reserves, through Basel III or restrictions in concentration, is in fact having almost the precisely opposite effect to that intended. The increase in reserves has not made banks safer, but it has forced a dramatic shrinking in bank balance sheets. The result is a crash dive in lending- especially to the critical small and medium enterprises sector. This is now getting to the stage where, in the words of a senior banker operating across the Baltic and Nordic markets who I was speaking to over the weekend: "within five years, no bank will be able to afford to take on SME lending". This continued credit crunch carries not only short term implications, but also long term implications, since the creative destruction of capitalism requires a healthy ecosystem of SMEs in order to grow.


I have noted before the failure of political leaders to understand the technical implications of the legislation that they are passing, however the scale of the mistakes at virtually all levels of policy making reflects not only a failure of understanding, but of vision. As the 29th or 30th emergency summit on the Euro passes with repeated failure to engage with the strategic crisis at the root of the single currency debacle, it is easy to become frustrated with the inflexible positions of Germany and France.


To a degree the positions of the EU leaders are now so well rehearsed that it is easy to believe a new stability has already been achieved. In fact the reality is that the gaps remain largely unbridgeable. The alienation between the Germans and the French is palpable, and the determination of France to create more wiggle room for themselves is matched by an increasing German determination to impose an unflagging and inflexible discipline. Meanwhile the British position: half in/half out, attracts opprobrium and contempt for the UK in equal measure from virtually everyone. As much as the British hope that the Germans are seen as the villains of the peace, the fact is that it is the image of the UK that is now the most negative one. Isolated, introverted and largely ignorant, the ability of the UK to project its point of view is now quite weak in economic affairs. "Punching above its weight" is the cliche that British diplomats like to use to describe the position of the UK, yet after the badly mishandled Cameron veto, it is clear that the position of Britain in EU economic debates is rather less than its size admits. Meeting German foreign policy officials in the past few days was a shock: not merely contempt but ill disguised loathing of the "the island" is now the standard view in Berlin.


Yet the need for wide scale political reform is just one more thread in this crisis. The institutions of Western capitalism are being challenged: externally from Chinese state capitalism and internally from the astonishing misapplication of capital that a corrupt and mismanaged banking system has built up over the course of the last twenty years- a disaster which was largely orchestrated in the City of London. Now the politicians in a vain attempt to close the stable door long after the horse has bolted are making further critical mistakes.


Recession is indeed the new normal, and it could be another decade before the situation changes. A ten year depression is on the cards, and at the end of it, Europe will have gone from being about 25% of the global economy to less than 7%. The power and influence of Europe will go the same way. After nearly four hundred years as the cockpit of human history, Europe is poised to become a backwater- and the failure of the political systems at both European and national levels is becoming a major factor in the implosion of Europe. 


And Britain, both for its politicians and its financiers, is getting a lot of the blame.

Comments

Popular posts from this blog

Concert and Blues

Tallinn is full tonight... Big concerts on at the Song field The Weeknd and Bonnie Tyler (!). The place is buzzing and some sixty thousand concert goers have booked every bed for thirty miles around Tallinn. It should be a busy high summer, but it isn´t. Tourism is down sharply overall. Only 70 cruise ships calling this season, versus over 300 before Ukraine. Since no one goes to St Pete, demand has fallen, and of course people think that Estonia is not safe. We are tired. The economy is still under big pressure, and the fall of tourism is a significant part of that. The credit rating for Estonia has been downgraded as the government struggles with spending. The summer has been a little gloomy, and soon the long and slow autumn will drift into the dark of the year. Yesterday I met with more refugees: the usual horrible stories, the usual tears. I try to make myself immune, but I can´t. These people are wounded in spirit, carrying their grief in a terrible cradling. I try to project hop

Media misdirection

In the small print of the UK budget we find that the Chancellor of the Exchequer (the British Finance Minister) has allocated a further 15 billion Pounds to the funding for the UK track and trace system. This means that the cost of the UK´s track and trace system is now 37 billion Pounds.  That is approximately €43 billion or US$51 billion, which is to say that it is amount of money greater than the national GDP of over 110 countries, or if you prefer, it is roughly the same number as the combined GDP of the 34 smallest economies of the planet.  As at December 2020, 70% of the contracts for the track and trace system were awarded by the Conservative government without a competitive tender being made . The program is overseen by Dido Harding , who is not only a Conservative Life Peer, but the wife of a Conservative MP, John Penrose, and a contemporary of David Cameron and Boris Johnson at Oxford. Many of these untendered contracts have been given to companies that seem to have no notewo

Bournemouth absence

Although I had hoped to get down to the Liberal Democrat conference in Bournemouth this year, simple pressure of work has now made that impossible. I must admit to great disappointment. The last conference before the General Election was always likely to show a few fireworks, and indeed the conference has attracted more headlines than any other over the past three years. Some of these headlines show a significant change of course in terms of economic policy. Scepticism about the size of government expenditure has given way to concern and now it is clear that reducing government expenditure will need to be the most urgent priority of the next government. So far it has been the Liberal Democrats that have made the running, and although the Conservatives are now belatedly recognising that cuts will be required they continue to fail to provide even the slightest detail as to what they think should guide their decisions in this area. This political cowardice means that we are expected to ch