Celebrations fade as constitutional crisis edges closer in Cairo

An unlikely coalition has formed between the Brotherhood and left-leaning revolutionary groups.

Jubilant scenes on Tahrir Square, as the Muslim Brotherhood’s candidate Mohammed Morsi was announced Egypt’s first post-Mubarak president, were dulled as the future of the country’s recently-dissolved parliament and the constitution-drafting body were left hanging in the balance after crucial rulings were postponed on Tuesday.

Consequently, thousands have remained on Cairo’s flashpoint square.

“Of course Tahrir’s sit-in is celebratory but it’s a victory that is soured by the recent wave of strong actions from the Supreme Council of the Armed Forces (SCAF),” explained former Brotherhood member Mohamed Farouk. He is member of the Board of Trustees of the Revolution, a collation of revolutionary and political forces currently manning Tahrir’s central stage.

The ruling military junta controversially dismantled parliament on 14 June after the High Constitutional Court ruled Parliamentary Elections Law unconstitutional. As the Constituent Assembly was elected by the now defunct legislative body, it too was expected to be disbanded.

In the midst of these contentious decisions, on 18 June, the SCAF issued amendments to the military-authored Constitutional Declaration, which took the place of Mubarak’s now-abrogated 1971 constitution on 30 March last year.

The addendum saw presidential powers significantly reduced and the junta awarded some legislative and executive powers – which many dubbed a “military coup”.

Egypt’s Supreme Administrative Court was expected to announce on Tuesday whether these actions were in fact legal but instead adjourned the session until July for the parliament and Constitutional Declaration decision, and September for the future of the Constituent Assembly.

Subsequently an improbable coalition of the Brotherhood and left-leaning revolutionary groups, including the April 6 Youth Movement and the Revolution Youth Coalition, continue to protest against the recent actions.

Quranic verses blend in with football-styled protest chants, as revolutionaries, ultra-conservative Salafists, leftist groups, hardcore football supporters and ordinary families vow to uphold the sit-in.

“We are not leaving the square until our demands, like the reinstatement of the parliament and keeping the Constituent Assembly as is, are achieved,” said Farouk.

“The weight of Tahrir, the Brotherhood organisation and Mohamed Morsi as president we’re hoping will be enough to help us reach our goals,“ added Shaima’ Abul-Leil, communications officer of the Board of Trustees of the Revolution.

Morsi and the organisation backing him seem to be the unlikely figureheads of Egypt’s continued revolutionary struggle against military power.

Just five months ago secular groups bemoaned the significant 43 per cent win by the Brotherhood in the parliamentary elections, their closed-door meetings with the SCAF, and the Islamist majority dominating the constitution-drafting assembly.

“I cannot believe I’m in the streets fighting alongside a conservative Islamist organisation which repeatedly abandoned us during clashes [with the police and military] last year and in 2012,” says Sara, 20, a political sciences student.  

Never have the stakes been so high, or the demands so aligned, for both the Brotherhood and the secular revolutionary forces.

Poisoned chalice

Morsi has inherited a seemingly-impossible task as Egypt's new president.

In the contentious amendments to the Constitutional Declaration, the SCAF ensured that it was untouchable and ungovernable by the president.

Contrary to the now-defunct 1971 Constitution, the SCAF would become the commander-in-chief of the armed forces, its incumbent members could not be changed and it would decide on all issues relating to the military.

Even the defence minister would remain unchanged, even though the president is allowed to appoint the cabinet.

In practice, this makes the SCAF a fourth arm of government, with, as the amended document ensured, super-presidential powers.

The SCAF has the right to appoint a constituent assembly, should the current assembly, whose very existence is under threat due to July’s expected court ruling, “face any obstacles preventing it from completing its work.” It can also reject constitutionals articles.

This would allow the military to have a serious hand in the drafting of the constitution, which will outline the president’s job description.

In the absence of parliament the military council awarded itself powers to legislate in the addendum.

In addition, key decisions were made by the military before the presidential election results were even announced.

For example, Egypt’s 2012/13 annual state budget, which was drafted by the military-appointed cabinet and signed off by the SCAF, will be applied on the first day of the presidency.

Despite the amendment and approval of the budget being a parliamentary privilege, the legislative authority only received the “austerity” budget, which was submitted two months late, a week before parliament was dissolved.

This sparked mass uproar amongst the MPs, particularly from the Brotherhood’s political party, who called the action a “conspiracy” ensuring the “downfall” of the coming government.

Legal experts claim that there may be re-elections after the new constitution is drafted, as the presidential mandate, Morsi will swear to, will have changed.

There is even money in the new budget assigned to the electoral commission to cover this, despite the fact that at the time of drafting the financial document, the parliament was still in place, and the presidential elections in the pipeline.

Undermining democracy

Tuesday’s postponement of the court rulings is a damning blow to the parliament, the constitution and consequently to the presidency as well.

The ruling on whether the current Constituent Assembly will remain in its current formation has been delayed until 4 September, at the very end of the constitution-drafted process.

It could be argued that should the military decide that the new constitution is not to its liking, the administrative court, which is very much in the pocket of the regime, would rule the assembly unconstitutional. This would make the constitution it drafted null and void as well.

Just three days before the ruling on the Assembly, another lawsuit is due to take place determining the legality of the Muslim Brotherhood as an organisation.

Therefore, by 4 September Egypt could see the parliamentary-elected Constituent Assembly dissolved, the draft constitution rejected and the Muslim Brotherhood dismantled: a massive blow to Morsi and Egypt.

Without the re-establishment of parliament, the only legal authority that Morsi can swear his presidential oath to is the High Constitutional Court, as outlined in the addendum.

By swearing to uphold the constitution as is, in front of the court, Morsi automatically legitimises the amendments as well as the dissolution of parliament. 

By postponing the verdict until after the president has sworn the oath and assumed office, the Administrative Court has ensured Morsi must swear to the amendments, or risk direct confrontation with the SCAF – something the Brotherhood is loathe to do.

“We do not want to break the back of the SCAF – in fact, we would like to revive the slogan “the army and the people are one hand’,” says, Dr. Mahmoud Khalil a Brotherhood member who jointly authored Morsi’s presidential “renaissance” programme.

“However, we will not stand for judicial corruption. If the ruling doesn’t go our way then we will get five million people in the streets as well as the upper and lower houses of parliament,” Khalil added, “Morsi will swear an oath in Tahrir to them. This will be massive escalation on the Brotherhood’s part against the SCAF – something we hope to avoid.”

He predicts this will not happen, and instead the Administrative Court will rule in favour of the parliament. The Brotherhood is “a firm believer in the institutions,” Khalil added.

These sentiments will not sit well with the leftist revolutionaries the Brotherhood are trying to court, who came to Tahrir on 25 January 2011 to re-imagine a new Egypt.
 

Post-election celebrations in Tahrir Square in Cairo. Photograph: Getty Images
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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?