Europe’s Super Sunday promises an exciting, uncertain future

Voters rejected austerity and they rejected the political establishment.

After a breathless day of elections from the north to the south of Europe, the result is clear. Voters across Europe have decisively broken the austerity consensus that has dominated for the last two years. But while François Hollande’s victory will delight left-wingers across the continent, the people of Europe woke up this morning to a very uncertain future. Unsurprisingly, the financial markets have reacted nervously with share prices tumbling and, in the case of Greece, by 8 per cent already.

There is a danger in hoping for too much from Hollande – he is unlikely to single-handedly turn the tide against the austerity consensus - but his victory signifies a seismic shift in Europe’s politics. With Sarkozy ousted, Angela Merkel has lost her main ally in leading the EU’s response to the debt crisis. Hollande has promised to re-negotiate the fiscal compact treaty and she will almost certainly have to offer concessions to prevent the Merkozy inspired creation from being kicked into touch. Meanwhile, EU officials have spent the last couple of months preparing for a Hollande presidency and will try to buy him off with a growth and jobs pact in exchange for keeping the treaty intact.

Merkel has also taken pre-emptive action to shore up her position by paving the way for her Finance Minister, Wolfgang Schauble, to take over from Luxembourg’s Jean Claude-Juncker as chair of the eurogroup – the eurozone’s 17 finance ministers. Schauble, like his boss, is an austerity-hawk.

Moreover, Hollande’s room for manoeuvre is not that great. While the French economy is not in crisis like the rest of Club Med, with unemployment nudging 10 per cent

and debt repayments amounting to more than the education spending after the country lost its AAA credit rating, it is hardly in rude health. His ability to bargain at EU level is also hampered by the economic governance package forced through by the conservative/liberal majorities in the European Council and the European Parliament. This forms the centre-piece to the EU’s austerity drive, locking EU countries into strict rules on overall budget deficit and debt levels, with fines for non-compliance.

However, the mood of the public and politicians has moved decisively. Hollande has promised to offer an alternative to a diet of cuts and to re-balance tax system, and he will need to sketch out a coherent economic programme in the first few months of his presidency. He should also try to make allies of Italian Prime Minister Mario Monti and the President of the European Central Bank, Mario Draghi, who have also made recent demands for economic growth and job creation to be prioritised over spending cuts.

But while the future for France is exciting, the future for Greece now looks even more uncertain. A country brought to its knees by bankruptcy and austerity now has a full-blown political crisis to cope with following a complete fragmentation of the party system.

The complete destruction of the two dominant parties is quite staggering. For the centre-right New Democracy party, which topped the poll despite winning less than 20 per cent of the vote the result is merely dismal. Their long-time rivals, the socialist Pasok party, which won the last election in 2009 with 43 per cent, fared even worse - annihilated with just 13 per cent. The two parties which have dominated Greek politics since the end of military rule in the 1970s, and which secured nearly 80 per cent of the vote in 2009, took just 32 per cent between them. By any yardstick the Greek electorate has given its political class a good kicking and the old status-quo will not be the same again.

If it was hard to see how Greece was going to cope with the terms of the second €140bn bail-out package with a relatively stable coalition, it now appears almost inconceivable that the deal will survive as it stands. All parties bar Pasok supported either re-negotiation of the terms or rejection even though moves to re-negotiate would be met with hostility by most EU countries.  If New Democracy’s leader Antonis Samaras, as expected, becomes Prime Minister, there are no obvious ways for him to cobble together a majority without accommodating parties on the far-left and right which want to tear up the bail-out agreement. New elections in a few months cannot be ruled out, although this is unlikely to make much difference. It is hard to see what possessed New Democracy and Pasok to agree to early elections. 

In the meantime, we can expect calls for the out-going technocratic Prime Minister, Lucas Papademos, to remain in government. Untainted by the debt crisis, Papademos enjoyed high personal ratings throughout his six months in charge and, if he can be persuaded to put his wish to return to teaching in the US on the back-burner, he would make a popular Finance Minister.

There was, however, one country where voters did not reject a governing party promising fiscal austerity – Germany. Angela Merkel’s CDU still topped yesterday’s poll in the German Lander elections in Schleswig-Holstein. Even though the CDU vote fell to 31 per cent, their lowest score in 60 years, they still narrowly beat the SPD. The real losers were Merkel’s coalition partners, the free-market Free Democrats, who collapsed to just 6 per cent, well beaten by the Greens and the Pirate party. Nonetheless, it is clear that Merkel still commands support and respect in Germany and, as an experienced leader of Europe’s strongest country, she is still the strongest force in EU politics.

For all that, however, there are two big messages that voters across Europe sent to their politicians on Super Sunday – they rejected austerity and they rejected the political establishment. Mainstream parties of the left and, particularly, the right should watch, listen and learn from these results. But those who have despaired at the right's obsession with self-defeating spending cuts have a reason to be optimistic again. Now it's up to you Francois.

Ben Fox is chairman of GMB Brussels and political adviser to the Socialist vice-president of economic and monetary affairs.

Financial markets in Greece have tumbled by eight per cent. Photograph: Getty Images.
Getty
Show Hide image

Aid in whose interest?

The government appears to be raiding the aid budget to subsidise big business and the security state.

In March 1988, Scottish aristocrat and Defence Minister to Margaret Thatcher, George Younger visited was part of a controversial offer of £200m of the UK aid budget in exchange for Malaysia signing a £1bn arms deal.

The government promised public money to subsidise UK construction giant Balfour Beatty to build a hydroelectric dam named Pergau in Malaysia’s mountainous north east.

Malaysia’s national utility, the World Bank and auditors at the Overseas Development Administration, the UK aid ministry, questioned the human development value of the project for the middle-income country, finding its costs to be “markedly uneconomic" compared to other options then available.

But these warnings were summarily dismissed.

Thatcher, who I believe saw aid not as a vehicle for eradicating poverty but as a means to advance Britain's commercial and geostrategic interests, wanted the arms deal.

In Malaysia, Prime Minister Mahathir Mohamad wanted an infrastructure project in Kelantan state, which was held by a rival party, which he wanted to wrest votes from.

But the National Audit Office soon got wind of the deal and parliamentary committees started to ask awkward questions of those involved.

The press published dozens of articles and the Pergau scandal was born.

Newspapers soon unearthed other white elephant development  projects resulting from the tying of aid to private British interests that did little for reducing poverty but were a boon for the contractors involved.

The Permanent Secretary to the ODA (Overseas Development Administration, now Dfid – the Department for International Development), Tim Lankester, said that Pergau was “unequivocally a bad buy”, “an abuse of the aid system” and “not a sound development project”.

The World Development Movement (renamed Global Justice Now) won a judicial review in 1994 against the government in the High Court which ruled the payment of aid “for unsound development purposes” illegal.

The Tories reacted, not by untying aid from UK vested interests, but by slashing the aid budget as punishment for the bad press – it seems that Thatcher saw little use for aid that could not be used to subsidise private interests.

Labour came to power in 1997 with an agenda to reform how Britain did development. It established a better-funded and politically-stronger aid department, the Department for International Development (DFID), with a seat in cabinet.

It scrapped the Aid and Trade Provision, the official mechanism by which aid was used to subsidise British company contracts, and in 2001 untied aid from UK commercial interests. The International Development Act of 2002 for the first time legally committed the UK to spending aid only on poverty reduction.

But since the Conservatives won a clear majority in last year’s general election, the government has been wilfully unlearning the lessons of Pergau.

Out of the hobbling coalition with the Liberal Democrats, Prime Minister David Cameron and Chancellor George Osborne have unpicked Labour’s reforms by effectively retying aid to the interests of the private sector and its perceived security interests.

They appear to have deprioritised poverty reduction as the principal purpose of the aid budget. “There is a real risk of the budget being recaptured by commercial interests as it was in the 1980s,” Sir Tim Lankester told me recently. “[International Development Secretary] Justine Greening has been making sure British commercial interests get more and more of the cake.

“What’s remarkable these days is the huge contracts going to the big consultancies to advise government and manage projects – The Adam Smith Internationals. The Crown Agents and others.”

November’s aid strategy “tackling global challenges in the national interest”, written largely by the Treasury rather than by Dfid, announced that aid would be a tool to “strengthen UK trade and investment opportunities around the world”.

The retying of aid spend is sold in the strategy in the same way the Conservatives sell austerity and privatisation at home.

Using the language of “prosperity” and “economic opportunity” (“inequality” was not mentioned once in the 22-page document), the government spins the dubious argument that communities in the world’s poorest nations share the interests of both UK business and the UK security state.

This “what’s good for us is good for you” aid strategy’s promotion of the UK interest over those of the poor grossly undermines the government’s legal duty under the International Development Act.

The aid strategy leaves it to the concurrently published National Security Strategy to enumerate what these imaginative interests are: to “protect our people”, to “project our global influence” and to “promote our prosperity”.

To achieve these ends, the government has allotted half of the aid budget to conflict-hit states, which are expected to be the states Britain has helped destabilise in recent years: Afghanistan, Iraq, Libya Syria and Yemen.

The government also successfully lobbied the OECD to widen the official definition of “Official Development Assistance” (aid) to include military spend on counter-terrorism and expand the use of aid subsidies for private – and inevitably British – projects in the developing world.

Over the course of this Parliament, the Tories will triple to around £5bn the amount of aid to be spent outside of Dfid. The main beneficiaries of this diversion of aid are the Ministry of Defence (MoD), the foreign office (FCO) and the business department (BIS). These departments are considerably less transparent than Dfid and, according to the National Audit office, spend most of their aid on middle income countries, rather than low-income countries.

This slide towards using aid to subsidise British business and as a slush fund top up its military and security budgets means that development projects devoted to public health, education and countering the agricultural and ecological destruction wrought by climate change, will suffer.

***

Take the growing spend by Dfid on private consultants and accountancy firms.

Under the Tory austerity programme Dfid’s staff has been slashed, which means there is less public capacity to allocate, monitor aid projects.

To compensate for this under capacity the government has farmed out the aid budget in bigger and bigger parcels to private contractors and accountancy firms to do the work for a profit.

Dfid spends some £1.4bn directly through private contractors and several times more than that through its payments to multilateral development banks that recycle British aid back through the private sector.

In 2014, Dfid said 90 per cent of its contracts are awarded to British companies, strange for a department that claims to have untied aid. Almost no contracts are signed directly with NGOs or contractors in the Global South.

In 2014 alone, it spent £90m through a single private consultancy, Adam Smith International (ASI), which that year declared £14m in profits, a profit that doubled in two years on the back of Dfid and British taxpayers.

ASI, which was spun off from the neoliberal think tank Adam Smith Institute, is in the business of privatising public works in the Global South from Nigeria to Afghanistan and deregulating the Nigerian economy under its “Business Environment” stream of Dfid’s £180m Growth and Empowerment in States scheme.

In 2014, Dfid spent £42.9m on the services of one accountancy firm alone (PwC), in spite of its part in the LuxLeaks tax avoidance scandal. It is this tacitly sanctioned flight of wealth that costs poor nations (non-OECD) three times more each year in tax avoidance to tax havens than they receive in aid from rich nations (OECD) according to the OECD itself.

Contrary to the public perception, aid is for the most part not “given” to poor countries. At present, only 0.2 per cent of the world’s humanitarian aid goes directly to local and national non-government agencies and civil society organisations. This is despite a consensus that these groups are the most effective engines for development.

The increasing use of private contractors and large bilateral financial institutions to get aid out of the door constitutes nothing less than a capture of the aid budget by corporate interests, which also advise the government on where to direct future aid flows.

Under this government, aid has become less a tool for development but a rent for a veritable industry that concentrates the knowledge, skills and finance in the companies and institutions of rich nations.

***

Take the amount of British aid that subsidises the fossil fuel industry and therefore promotes global warming, which affects the poor considerably more than the rich because they lack the resources to adapt.

The effects of climate change are already biting. The rising frequency of drought on the world’s semi-arid regions of the world, including the Middle East constitutes, to borrow a term from Professor Rob Nixon, a “slow violence” enacted by industrialised nations on the poor.

Our refusal to take commensurate action on climate change means that water stress is rising across the world, which impairs development and has even been linked to conflict in Nigeria and Syria.

In April, I visited Somaliland, which is experiencing the worst drought in living memory along with the rest of east and southern Africa. Agriculture has collapsed, the animals are dying and migration is rising fast.

Many of these climate refugees are washing up on the shores of Italy and Greece. Survivors in are being sent back to Turkey because there is no international protection available to a subsistence farmer without water or a parent who cannot afford to feed their children.

In 2009, the UK pledged at the G20 to phase out inefficient fossil fuel subsidies but instead it has been using public funds to increase them, according to the Overseas Development Institute.

Using aid money to give the fossil fuel industry a leg up and imperil us all to the onslaught of global warming entrenches inequality and hampers sustainable development.

***

Last year the EU signed a €1.8bn aid package with the governments of 20 African nations, including Eritrea, a totalitarian state financed by slave labour, to keep Eritreans in their country and to accept planes filled with their citizens who are denied asylum in Europe.

Clearly, this aid money is being spent principally the interests of the donors and not the world’s poor.

But aside from using aid to forcibly return people at risk of human rights abuses, this aid holds development back in other ways. Migration is the biggest driver of development because economic migrants from poor countries who work in rich countries back remittances that amount to three times the international aid spend.

“Migrants are the original agents of development,” William Lacy Swing, director of the International Organization for Migration, told the World Humanitarian Summit in May.

In effect we are spending public money legally allocated for reducing poverty on keeping the world’s poor mired in it.

***

Take the UK’s “preventing violent extremism” agenda – borrowed, of course, from the Americans – under whose banner projects can be now funded with UK aid.

Britain’s successful lobbying of the OECD – in opposition to other large donor states, including Sweden – to include some counter-terrorism military spend in the definition of aid is of deep concern.

The OECD already allowed for the provision of aid to prevent conflict and promote peace but this new extremist lens, as opposed to the purely conflict lens, allows the aid spend to become politicised.

After all, governments across the world call their political enemies “extremists” or “terrorists”, but the term is rarely ascribed to governments themselves, even when they brutalise their populations.

The government seems ready to exploit to this change, having set up its new £1bn aid-funded Conflict Stability and Security Fund (rising to £1.3bn in 2020), of which 90p of every pound is spent by the FCO and the MoD.

The stage has been set for Britain’s security state to raid the aid budget to pursue the ill-conceived and expensive military strategy du jour.

The government’s agenda to spend aid in conflict-hit and fragile states on counter-terrorism projects has a bad precedent. The US development agency USAID spent billions in post-2001 Afghanistan, which was embezzled or spirited out of the country.

Even worse, the aid was destabilising. “Instead of rescuing the [political] transition process, aid contributed to its failings,” said the NGO Saferworld in a report this year on the lessons learned from the American state-building strategy in Afghanistan. “Large aid volumes overwhelmed local absorptive capacity and sustained a rentier state . . . The influx of aid funds and the competition over the illegal economy strengthened predatory and opportunistic elites that the US and its allies tried to reform.”

The British government risks falling into the American trap of using counter-terrorism aid to remake conflict-hit fragile states into democracies.

The Independent Commission for Aid Impact (ICAI), the government’s own aid watchdog, has criticized the government’s failure to learn lessons from the past, adding that its security initiatives are “naïve” and perform “poorly” in terms of both effectiveness and value for money.

***

In another dangerous case of aid not being used in the interests of development, the Tories are using it to establish private healthcare and education across the Global South.

Publically provided, free and universal health and education of the type we enjoy in Britain should be pursued across the Global South because it reduces inequality and strengthens democratic accountability.

Private provision of these services in the words of turns these basic needs into commodities whose price variable and unaffordable to poor and marginalised sections of society.

In Britain we should be internationalising the principle of free-at-the-point-of-use health and education, a privilege hard fought for by a generation of Labour politicians interested in social justice and the condition of the poor.

Instead, Dfid’s Education Position Paper calls for “developing new partnerships across the public-private spectrum” and commits Dfid to promoting low-cost private schools “in at least four countries”.

Its flagship education programme of the Department of International Development, in partnership with Coca Cola and PwC, is the £355m Girl’s Education Challenge, which rolls out private education across 18 countries, including 15 African nations.

In signing up to last year’s Sustainable Development Goals last year, Britain committed to “achieve universal health coverage”, which is directly undermined by a development agenda which favours fees.

***

The privatisation of our aid budget alongside its entrapment by enormous multilateral financial institutions is symptomatic of the wider erosion neoliberalism is enacting on the British – and global – economy.

In 2016, aid should be about empowering the losers of neoliberalism across the Global South to cut poverty and reduce inequality. This means placing more emphasis on working directly with the poor, colonised and, more-often, the women of the Global South.

Aid should not be spent on the five and often six figure salaries of the global financial elite, nor should it be tied to Britain’s commercial interests to provide public subsidy for private interests. If we wish to subsidise our private sector, that’s fine, but should do it using export credit and not disguise it as aid.

I can already hear the outcry from development experts that spending money at the grassroots is harder to track and the shrill headlines that taxpayers’ money is being wasted on bee-keepers in Kyrgyzstan or on a Somali radio drama that gave tips to illegal immigrants (all real headlines from the Murdoch press).

But I would accept more “waste” by employing more Dfid civil servants to monitor a greater number of smaller grassroots aid projects on a trial-and-error basis than I would accept the other now ubiquitous form of waste that we do not call waste: the subsidising poverty barons, who enrich themselves off the aid ‘industry’.

This is not a particularly radical agenda. Aid under Labour’s Clare Short, Dfid’s first head, targeted the grassroots and there is a growing consensus among the establishment that we must return to this model to make development more effective and give poor people ownership over projects rather than imposing them from above.

More power and capital needs to go into the hands of grassroots groups.

We must recall the lessons of Pergau and redesign our aid system so that it is not captured by industry or distant elites for their own profitability but a means by which the poor can bring about transformative social change for themselves. 

Diane Abbott is Labour MP for Hackney North and Stoke Newington, and shadow secretary of state for international development.