European contagion

It took them a surprisingly long time to move, but as of this morning the speculators have seriously latched onto the Euro:

Traders and hedge funds have bet nearly $8bn (€5.9bn) against the euro, amassing the biggest ever short position in the single currency on fears of a eurozone debt crisis.

As the FT suggests, they’re betting on both the Greek government’s inability to avoid default – or at least devaluation and exit from the Euro – and the subsequent inability of other Euro currencies to withstand ‘contagion’: financial instability spreading from one economy to the next, with country after country pulled into the maelstrom.

Other Euro economies are exposed to Greek upsets through the substantial investments various European financial institutions now hold there. French investors are the biggest, holding $58bn worth of Greek debt at the end of 2008 (on the IMF’s most recent figures), with German investors next on $32.3bn.

UK holdings are more modest, but still very substantial, covering $14.4bn worth of loans. Around a third of Greek government debt, meanwhile, is held by Greek investors. All will take a hit from substantial fiscal turmoil in Greece. And all the big exposures are in Europe.

Major financial institutions can try to get rid of some of this risk by adjusting their portfolio of assets. The real danger is that, in doing so, they will look to dispose of debt securities held in other, smaller Euro economies with weak fiscal positions – Portugal, Ireland and Spain, in particular.

It’s these three that are now causing additional grief for the Euro. A quick glance at the combination of high public debt, and wobbly governments, tells you why the short-sellers are licking their chops. The betting is on one of the PIGS, so-called – Portugal, Ireland, Greece, Spain – going belly-up some time soon.

But it’s Greece that remains the biggest single risk. Revisions to the public debt figures have rattled markets, while the deep spending cuts offered in sacrifice by the newly-elected PASOK government have failed to calm jangled nerves.

If the big banks and the institutional investors pull out of Greece, they can spread financial instability elsewhere – with speculators adding to the chaos, moving colossal volumes of hot money at fantastic speed across national borders. The whole Eurozone – potentially even the Euro project itself – could suddenly appear unstable.

The decade has been generous to the Euro. A benign economic environment, floating atop a giant property-and-finance bubble, kept the show on the road. Those days are long gone.

The deciding factor here, however, is political. Either the Greek government can keep the markets reaonably sweet, holding firm to bigger and bigger promises attacks public services and wages; or the markets will be unconvinced, dragging Greece out of the Euro.

That’s where the EU steps in. The risks of contagion, and the damage to the Euro’s credibility, will no doubt concentrate European finance ministers minds on arranging a bailout. It’s the prospect of a rescue package, rather than some sudden belief in the Greek government’s firm grasp of the axe-handle, that has led to some improvement in the Euro’s position.

The planned cuts are already meeting resistance. Farmers are blockading roads, and thousands of public sector workers are expected to strike tomorrow against the wage freeze.

Serious opposition in Greece to the EU’s austerity package could open the path for resistance across Europe. But successfully fighting off the cuts will also mean building a credible, political opposition to the rule of finance.

(hat-tip to Eugenia for the figures)

“Tough fiscal times…”

One of the Milibands and Douglas Alexander, perfectly summing up New Labour’s inadequacy in an otherwise plodding think-piecee:

Tough fiscal times make progressive politics harder not easier…

“Tough fiscal times” should make progressive politics easier to argue for. It is easier to argue for serious tax hikes on the seriously wealthy when they’re still snout-deep in the trough, and public services are threatened with cuts. It is easier to argue for a clampdown on the City when the pinstripe brigade are once more pocketing fat bonuses. And it is easier to expose the rottenness of the free market when hundreds of thousands still face redundancy.

It’s easier to argue for all this. The audience is out there for a genuine, progressive politics. But meaningful change will only happen when the real progressive arguments have the movement and the organisation to back them up.

Swingeing cuts and capital controls

Seems Alistair Darling, and the relatively more sane sections of British capital, have drummed home the message:

A Conservative government would not make “swingeing cuts” to public spending during its first year, party leader David Cameron has told the BBC.

But he said it was right to make a start on cutting the deficit, to avoid the same “scale of problems” as Greece, where public finances are in ruins.

There are good reasons why the Tories haven’t quite sealed the deal on the election, and amongst that list must be their inability to present themselves as vaguely credible managers of British capitalism, as this new wobbliness demonstrates. Darling et al still look like the better bet for the City – although for the rest of us the electoral choice on offer is white or Brown bread on our shit sandwiches, with all sides offering cuts in the near future.

Nonetheless, Cameron finally seems to have grasped that immediately hacking away at public spending in a depressed economy is on a par with sawing your legs off to save on shoe-leather. But keeping the government funds flowing is uneasily dependent on what the other major economies are doing. If they’re all spending too, it works; but the minute the markets get a whiff of some rollback elsewhere, they’ll start noticing the parlous state of the UK’s finances.

And that won’t be pleasant: stopping a massive flight of capital will mean trashing the domestic economy, with ’swingeing’ cuts to public services, and an assault on real wages. Cameron mentioned Greece.

An obvious alternative, of course, would be to stick two proverbial fingers up to the financial markets and introduce capital controls, stopping big money leaving the country. But given the determined cravenness of the British political class before the markets, that’s not an option a future government will want to contemplate – not, at least, without a Left capable of forcing the issue.

No mass support for neoliberalism: the British Social Attitudes survey

Liam Mac Uaid has a downbeat post on the just-published 2009 British Social Attitudes (BSA) survey results. The BSA attempts, every year, to capture the British public’s feelings on a huge range of issues. Here’s Liam:

…neo-liberal values are gaining a real grip on mass consciousness. The authors say ”only two in five people (39%) now support increased taxes and spending on health and education,the lowest level since 1984 and down from 62% in 1997.” They add that “support for redistribution from the better off to those who are less well off has dropped markedly. Fewer than two in five (38%) now think the government should redistribute income from the better off to those who are less well off, down from half (51%) in 1994.” In a nasty Thatcherite echo[, a] minority of one in five (21%) think unemployment benefits are too low and cause hardship, compared with over half (53%) in 1994.

I think he’s got the wrong intepretation of the results. That shift on public spending has been taking place for nearly a decade, from a peak in 2002 when 63 per cent supported increased expendiute. But it’s not flipped over into support for axing public services. People want, instead, to maintain what they’ve got.

There is no mass support for Thatcherite spending cuts. Here’s what the report’s authors say:

Public support for increasing taxation and public spending is now at its lowest level since the early 1980s. 39% support this, down from 62% in 1997. Only 8% support cuts. The most popular view, held by 50%, is that spending and taxation levels should stay as they are.

Only 8 per cent of the population support cuts. That’s hardly compelling evidence of ‘neoliberal values’ gaining popular support. And it leaves 89 per cent wanting either the same spending levels, or an increase.

Set these broad-brush figures against more detailed work that finds over 70 per cent believing the gap between rich and poor is too large, or the 80 per cent wanting caps on corporate pay, and the situation is – at least – more complex than Liam suggests.

There’s no reason for complacency. Attitudes can shift. The Right is looking more organised. But the whiff of battles ahead should not mean conceding defeat now.

‘Blair’s Judgement Day’

The timetable’s sorted for the protests outside Blair’s much-anticipated appearance at the Chilcott Inquiry. Details on the Stop the War Coalition site here. The police are currently trying to shove any demonstrators out of sight of the media – and indeed Blair himself – around the corner, citing the risk that we might ‘damage the grass’ opposite the Queen Elizabeth II conference centre: an eerily familiar excuse. If there’s enough of us there, they won’t be able to do that. Stop the War are asking people to get down to Westminster from 8am to greet Blair’s arrival in appropriate fashion.

The day before, Brown’s Afghanistan PR exercise opens at Lancaster House.

Brown’s international conference on 28 January is nothing more than a public relations exercise aimed at turning the tide of public opinion, running so strongly against a war which is clearly futile and unwinnable. In truth the warmongers are gathering for a war council masquerading as a peace conference.

This why the Stop the War has called for a blockade of Lancaster House, where the conference is being held, giving voice to the majority of people in US, Britain, Germany, France and most of the 43 countries in the “coalition”, who do not want more war, but all foreign troops to be brought home.

Protests start at 8.30am, Lancaster House – down The Mall from Trafalgar Square.

Financial Times uncovers anticapitalist mood

Opinon poll, Financial Times yesterday:

Three in four people want the government to go further in its crackdown on bankers’ pay and impose a cap on salaries, according to the results of the latest Financial Times/Harris poll.

Almost four in five said they agreed with the supertax on bankers’ bonuses announced by Alistair Darling, the chancellor, last month. But three-quarters of those polled said there should be an additional ceiling on pay.

Perhaps no great surprises, there. Investment bankers rank somewhere around bubonic plague and anthrax in the public’s affections at present. And it’s good to see such widespread aversion to fat corporate paycheques. Making a few pips squeak in a few bloated lemons with a new, higher rate of income tax would be both fair, and popular.

It’s the result the FT doesn’t comment on that is most interesting, however. From the graphic, thirteen per cent don’t just blame bankers for the crisis – the ‘economic system as a whole’ is at fault. That’s nearly six million voters nationally.

That doesn’t mean they’re all about to rush into the Left’s arms – blaming the ‘economic system as a whole’ is open to wide interpretation, left or right. But it does mean that an extraordinarily large number of people are open to the sort of system-wide critique an organised, effective Left can provide.

Peering into the gloom

Alex Callinicos has provided a brief summary of the state of the world economy, as revealed in recent statistics:

The National Institute for Economic and Social Research (NIESR) released its estimate for Britain’s Gross Domestic Product (GDP). It noted, “GDP fell by 4.8 percent in 2009. This is a bigger fall than in any year of the Great Depression and is Britain’s biggest contraction since 1921…

“The broader picture of the depression is that output fell sharply for 12 months until March and has not changed very much since then, although evidence of a recovery is starting to emerge.”

In other words, the British economy shrank more last year than it did in any one year of the Great Depression of the 1930s.

Callinicos also notes, however, that the future courses of the British and world economies are ‘shrouded in obscurity’.

He’s right to point out the uncertainties. What has happened in the recent past is, by itself, no guide to the future – as Gordon ‘no return to boom and bust’ Brown has discovered. The red faces in the economics mainstream tell their own story.

Nonetheless, stepping back from the statistical picture, it is possible to discern some shapes.

The most obvious is the pressure on the British economy from the vast costs of bailing out the financial system. Any attempt to substantially repay this borrowing within either the four years that Alastair Darling has offered, or the shorter timescale favoured by the Tories, will drag down the rest of the economy.

It represents a huge transfer from those spending money – either us as taxpayers, or the government through services – to those who save money: from those keeping the economy moving, to those hoarding cash.

Both the main parties are committed to repayment, squeezing workers and public services to please the financial markets. But repaying the debt does not necessarily benefit British capitalism in general. Other sections of capital need a robust domestic market to sell their products to – especially if markets overseas remain depressed, and competitive. Most UK companies do not export. If their domestic market is squashed by rising taxes or public spending cuts, they are in trouble.

So whilst all sections of British capital have a belief in the general necessity of keeping the financial markets sweet, the rate at which that debt should be repaid is a different matter.

Too fast, and domestic demand is squashed. Too slow, and the financial markets get jumpy. No-one can know for sure the best rate. And the different sections of British capital all have their own idea.

As the crisis revealed, no major part of British capitalism is prepared to countenance radical steps to overcome this dilemma – Adair Turner’s remarks notwithstanding. When the City of London was on its knees, the priority on all sides was to help it to its feet, through bailouts. No effort was made to seize the economic reins from the City.

Because the banks and the financial institutions were bailed out, and because there has been no real international agreement on how to discipline them in the future, they are liable to behave in exactly the same way as before: taking risks that could undermine the whole economy.

Combine this with the uncertain rate of debt repayment, and you have the potential for major instability. That’s even before considering the potential for resistance to major cuts. Whichever government is in place could run into a brick wall of opposition.

There is a way out of this bind. But it would mean posing a serious economic alternative to the domination of the City. It would mean building a movement able to do this.

Eyewitness report from Stoke UAF protests…

…against the English Defence League, over at A Very Public Sociologist.

Blip, blip, beeeeeeep

David Blanchflower, right again on the Bank of England’s ‘independence’:

The claim was that [central bank independence] would help bring macroeconomic stability and it seemed to have worked for a while, because inflation remained low for most of the next decade. But that was driven by cheap imports from China. When Tony Blair was asked recently in an interview at Columbia University what had driven the Great Moderation [ie the decade-long boom] he replied, “Luck”, and that seems about right.

It turns out that countries without an inflation target did just as well as those with one. And it didn’t protect us from the greatest economic shock of our lifetimes.

It’s not been clear, over the last year or so, that the Bank has exercised any meaningful ‘independence’ in any case. The Bank, and the Monetary Policy Committee, certainly gave the impression of being brought under the Treasury’s thumb. Not in itself a bad thing: the monomaniacal inflation-hunters on the MPC needed a sharp kick up the backside. It’s pity it had to be the nice people at HMT to do it; well, them and a recession so big that even the most myopic of latter-day monetarists managed to spot something was up.

The merest whiff of a glimmer of a faint hope of a recovery has, however, given at least one Committee member the excuse he needed to get straight back onto the inflation mainline, threatening interest rate hikes ahead of any meaningful improvement in the state of the economy. It’s not just as if the Great Depression never happened. It’s as if the last two years never happened.

The blip in prices upwards this month is likely to be nothing more than that: a blip, caused particularly by the reversal of the VAT cut. The biggest single risk to the UK economy remains that of deflation, with falling prices dragging down economic activity and pushing up the real burden of debts. But at least some of the MPC remain oblivious. Markets panic about inflation. And the MPC follows the markets.

Time to clip their wings. Close down the MPC, and put the Bank of England under democratic control; and, whilst you’re at it, why not do the same for the other nationalised banks?

Haiti: further background reading

China Mieville penned a lengthy critique of international law last year that took the 2004 coup, and subsequent occupation, as its starting point. It’s an under-considered angle, and China is particularly sharp at pinning down the omissions, unstated assumptions, and plain misrepresntations of much subsequent reportage. Pashukanis at Law and Disorder also has a reflection on the international law’s complicity in the catastrophe, and some reflections on recent critical writing.

Peter Hallward’s 2004 New Left Review essay is available in full on the NLR site. Written in the coup’s immediate aftermath, it provides a valuable precis of Haitian history and its continued depredations at the hands of successive imperial powers.