Archive for October 18th, 2008
18th October 2008
Arc of Hypocrisy
Labour has blasted the Tories’ ‘“juvenile political games” over the economic crisis. This hasn’t stopped them using Iceland’s woes and the nationalisation of Scottish banks as a stick with which to beat the SNP. There is a slight element of schadenfreudein all of this which is predictable from the London media - including the BBC who have taken up the theme with gusto - but it’s a little odd coming from a Scottish-born Prime Minister even if he has a by-election to win in Glenrothes.
There is an ism that begins with an ‘N’ that is discredited by the current crisis, of course: but it’s not nationalism, it’s neoliberalism. Any country, large or small, that has worshipped at its altar over the last few years has had to suffer the consequences as the huge global roller-coaster of debt has juddered into reverse. Hugely over-leveraged Iceland and the flat-tax enthusiasts of the Baltic States are now found wanting. But so too are the US and the UK, the largest and fourth largest economy in the world, that led the trend for deregulated and over-bloated banking sectors fuelling an asset bubble that has now spectacularly burst.
Size is pretty irrelevant here. Small states like Norway and Finland or larger states like Spain that had their banking crisis earlier and re-regulated as a result have emerged relatively unscathed from this financial crisis though they will, of course, have to cope with the effects of the global downturn. The Republic of Ireland - accused of beggar-thy-neighbour policies by British politicians and the British press as if the decision to guarantee all domestic deposits was somehow the Potato Famine in reverse - pulled off an international coup which insulated their banking sector from the crisis. The only bank to go bust in Ireland was the Dublin-based subsidiary of the German bank Hypo Real Estate. Both Angela Merkel and Gordon Brown were angry with the Irish, but Dublin actually exposed the dithering that forced London and Berlin to do something to protect their own banking systems. Lord Jones - formerly of the CBI - even went on the radio to explain the UK couldn’t follow Ireland’s plan because only small countries could afford to provide a total deposit guarantee. An independent Scotland - bolstered like Norway by a sovereign wealth fund - would almost certainly have done the same.
What would an independent Wales have done? Well, I think it’s pretty certain that we wouldn’t have gone warp-speed from a banking sector of one (the diminutive Julian Hodge Bank) to a sector whose liabilities amounted to six times our national income (the putative Iceleandic level of leverage). We would have a relatively small and well-regulated sector which would mean the collateral damage to the Welsh economy would be pretty limited. As it is, we are joined at the hip to a City-dominated London-centric economic system which means we are going to pay heavily for risks we didn’t take and whose up-side we hardly profited from in the first place - unless you believe in trickle-across economics.
In this age of uncertainty, I think it would be best if Labour politicians avoided an air of triumphalism when contrasting Britain’s economic fortunes with anyone, for the moment, small or large. The UK has run large trade and budget deficits for the last decade and a half. While the Russian Government may end up bailing out Iceland, we have funded our mountain of corporate, household and government debt through Russian oligarchs, Asian banks and Middle Eastern sovereign wealth funds. Even the £37 billion bank bail-out touted by Brown as evidence of the strength of the UK was funded by yet more borrowing on the international money markets. Is it any wonder that the credit default swap rates (the cost of insuring against default) for UK Government debt has doubled in the last month or so to three times the cost of ‘little’ Norway. Incredibly, buying insurance against the prospect of default by the Campbell’s Soup Company is now cheaper than insuring against the bankruptcy of British Government. Campbell’s Soup was founded by a Scottish Presbyterian. Enterprising people the Scots. Mr Brown is in no position to criticise, less still to write them off.