Eurozone soap opera reveals a damaged relationship with markets

Democracies need to get some self-respect.

We’re all familiar with the story. Girl meets glamorous guy with flashy car and nice teeth who promises her the world. He screws around, and when she gets angry, he threatens to leave. But by now our girl is so dependent on the guy she’s desperate for him to stay. Sobbing, she throws herself at his feet and promises she’ll do better.

This soap opera can help us understand what’s playing out in the eurozone.

States fell in love with markets, and they let us down. Financial deals we depended on turned out to be phonies. When we talk about introducing extra regulation to prevent this happening again, financial institutions threaten to leave our borders and seek pleasure elsewhere.

Like the girl, democracies are now the ones offering to change. At the centre of the emerging eurozone plan is a call for fiscal integration, whereby states promise to abide by strict spending limits in return for bailout funds. But the underlying causes of under-regulation and overconcentration of market power remain unsolved. Our relationship with the City still suffers from an imbalance of power and we’re still at risk.

We need to be more honest about what triggered the current European crisis. Apart from Greece, the problem was not unsustainable levels of public spending. It was banks handing out risky loans and stockpiling bad debts. Spain is a classic example. The country ran a balanced budget until 2008, when it was forced to pile horrific property debts onto the public balance sheet to bail out irresponsible lenders. As this fantastic BBC graph shows  (see total debt graph), this is a common pattern for most countries.

I don’t want to abdicate responsibility. We all took on those loans from the banks when we shouldn’t. We all enjoyed that party in a bubble and lived a false dream when we should have kept a tighter eye on reality. Britain should have been in surplus from 2004-2008. The girl in our story should have been brave enough to see the writing on the wall. We should have taken action earlier.

But we are where we are. All we can do is change our behaviour now. It’s understandable that Merkel wants fiscal rules on states to make sure they don’t blow German money. But without addressing the banks too, you’re setting up a terrible incentive problem. Everyone knows if the girl gets back with the guy without punishing him for cheating, he’s going to do it again. In fact now he knows he can get away with it, he’s more likely to.

Sadly in the middle of the crisis, no country feels strong enough to limit financial services, whether it improves stability or not. In a desperate attempt to grow, governments are happy for banks to throw money at anything. Any bubble is better than stagnation. We don’t have the self-esteem or self-confidence to challenge our irresponsible partner and build a better relationship.

Although there is some talk of banking union, this is more about sharing bad debts than introducing stronger lending conditions. Although some like former F&C chairman Robert Jenkins says this may change, at the moment the assumption that “liquidity is free and will and will be freely available” continues to hold.

Britain is one of the greatest sufferers of self-delusion. Osborne is massively opposed to the transaction tax – the one small move Europe might be prepared to take to challenge the City – and he used his recent Mansion House speech to announce that the state will be underwriting risky loans. He’s pulled back on the already watered down proposals of the Vickers Commission, reducing the required amount of back up deposits to three per cent when columnists like Martin Wolf at the FT are calling for ten per cent.

You don’t have to be an agony aunt to figure out what comes next. Without a change in this poisonous relationship, we’re setting ourselves up for another fall. Our girl needs to rediscover her self-respect. Get it wrong, and it will hurt. But get it right, and democracies and markets have a chance to build a new, more honest and productive future together.

Democracies and markets could still find a more stable future together. Photograph: Getty Images

Rowenna Davis is Labour PPC for Southampton Itchen and a councillor for Peckham

Grant Shapps on the campaign trail. Photo: Getty
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Grant Shapps resigns over Tory youth wing bullying scandal

The minister, formerly party chairman, has resigned over allegations of bullying and blackmail made against a Tory activist. 

Grant Shapps, who was a key figure in the Tory general election campaign, has resigned following allegations about a bullying scandal among Conservative activists.

Shapps was formerly party chairman, but was demoted to international development minister after May. His formal statement is expected shortly.

The resignation follows lurid claims about bullying and blackmail among Tory activists. One, Mark Clarke, has been accused of putting pressure on a fellow activist who complained about his behaviour to withdraw the allegation. The complainant, Elliot Johnson, later killed himself.

The junior Treasury minister Robert Halfon also revealed that he had an affair with a young activist after being warned that Clarke planned to blackmail him over the relationship. Former Tory chair Sayeedi Warsi says that she was targeted by Clarke on Twitter, where he tried to portray her as an anti-semite. 

Shapps appointed Mark Clarke to run RoadTrip 2015, where young Tory activists toured key marginals on a bus before the general election. 

Today, the Guardian published an emotional interview with the parents of 21-year-old Elliot Johnson, the activist who killed himself, in which they called for Shapps to consider his position. Ray Johnson also spoke to BBC's Newsnight:


The Johnson family claimed that Shapps and co-chair Andrew Feldman had failed to act on complaints made against Clarke. Feldman says he did not hear of the bullying claims until August. 

Asked about the case at a conference in Malta, David Cameron pointedly refused to offer Shapps his full backing, saying a statement would be released. “I think it is important that on the tragic case that took place that the coroner’s inquiry is allowed to proceed properly," he added. “I feel deeply for his parents, It is an appalling loss to suffer and that is why it is so important there is a proper coroner’s inquiry. In terms of what the Conservative party should do, there should be and there is a proper inquiry that asks all the questions as people come forward. That will take place. It is a tragic loss of a talented young life and it is not something any parent should go through and I feel for them deeply.” 

Mark Clarke denies any wrongdoing.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.