Don't be fooled. This is still a banking crisis

And our elected politicians should call the bankers' bluff.

RBS chief executive Stephen Hester Source: Getty Images

Let's get one thing clear: this is not a crisis of, or for governments. This is first and foremost a banking crisis.

EU governments do not need a fragile, reckless and immensely wealthy private banking sector. However, as the financial markets made clear last week, the fragile private banking sector urgently needs Eurozone and in particular, taxpayer largesse.

For more than thirty years of financial de-regulation, western taxpayers have shored up and guaranteed the immense wealth and reckless lending of private bankers and their shareholders. Without their sacrifices, many private, global banks would have been liquidated during the financial crises of the 90s and through 2008. Thanks to public largesse, private bankers, their shareholders and bondholders survived. Some even thrived as weak western politicians failed to demand 'terms and conditions' for bailouts.

Now private banks are once again faced by liquidation - because of reckless and costly lending to poor and economically weak Eurozone governments and banks. If their losses are not socialised, they and their shareholders are doomed.

And so bankers are doing what highway robbers have done throughout time: holding a proverbial gun to the heads of Eurozone politicians and central bankers, and demanding they hand over cash.

Politicians should call their bluff.

Two weeks ago, EU leaders promised to set up a 440 billion-euro fund (the European Financial Stability Facility) that would, for example, help finance Greece's repayments for expensive loans made by UK, French and German banks. But politicians were fuzzy about numbers, because they had to consult EU parliaments. Bankers, facing insolvency, cannot wait for wider consultation.

"Bailouts need a bigger bucket" roared the banker's magazine Barrons. And, it appears, they need it now. The "bucket" is considered "wholly insufficient." Trillions more Euros are needed to shift the burden of losses from the private to the public sectors.

And just in case holidaying politicians failed to get the point, financial markets swung into action, and last Thursday piled on the blackmail.

That is not of course, how bankers see it, or tell it. On Friday, Stephen Hester, chief executive of RBS, told Radio 4's Today programme that "this is not a banking crisis." Instead he argued this is a crisis of "confidence in governments." Governments, he said, "need to give confidence to markets....that they will play their proper role in providing liquidity [my emphasis]. . . not to banks, but to governments, to enable funding to go normally...." He trailed off at this point, but I assume he had meant to add, "to enable funding to go normally to private bankers". Yes, those same bankers that had lent recklessly in the first place.

The fact is this: private bankers need a Eurozone bailout. Eurozone taxpayers do not need private bankers. It is possible, desirable even, to break loose from the chains of financial injustice and untie the cords that yoke the taxpayers of Europe to the interests of a financial elite

We know, because it has been done before.

The last time the world threw off the yoke of private wealth was in the 1930s. In September 1931, Britain's finance sector demanded high interest rates and austerity as the 1929 financial crisis hammered the very people innocent of its causes. At this point Britain, like Greece and Spain today, became defiant. The UK threw off its fetters and left the gold standard - the Euro of a century ago.

Under Keynes's tutelage, Sterling was revived as a money managed in the interests of the domestic economy by the Bank of England. It was protected from speculation and from the vested interests of the financial elite. After the war Britain embarked on one of the finest programme of public works expenditures known in modern history - and society thrived.

Interrupted by war, and diluted at Bretton Woods in 1947, finance was still restrained as servant, not master to the economy through the age of economic and social advance from 1945-1970.

If the Eurozone were to throw off the ties that subordinate it's prosperity to a small financial elite, it would feel the full force of the banking sector's anger through its friends in the media, academia and politics. But very soon, Europeans would come to understand that the alternative was very much better than subjugation to a small, arrogant and morally bankrupt elite.

Ann Pettifor is a director of PRIME, an economic think-tank, and a Fellow of the New Economics Foundation.

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Two referendums have revived the Tories and undone Labour

The Scottish vote enabled the Conservatives' rebirth as the party of the Union; the Brexit vote has gifted Theresa May a project to reunite a fragmented right.

In the final week of the Scottish independence referendum campaign, as the Union appeared in peril, David Cameron pleaded with voters to punish his party rather than Scotland. “If you are fed up with the effing Tories, give them a kick,” he said. Cameron’s language reflected a settled view: the Conservatives were irredeemably loathed by Scots. For nearly two decades, the party had no more than one MP north of the border. Changing the party’s name for devolved contests was discussed.

Since becoming Conservative leader, Theresa May has pursued a hard – she prefers “clean” – Brexit strategy that Scots voted against and the Conservatives have achieved a UK-wide poll lead of 20 points.

Yet rather than regressing, the Scottish Conservatives have resurged. On 22 April, a Panelbase poll put them on 33 per cent in Scotland (a rise of 18 points since 2015). A favoured Labour barb used to be that there were more pandas (two) in Scotland than Tory MPs (one). The poll would leave the Tories with 12 seats and Corbyn’s party with none. Tory aides confess that they were surprised by the figures but declare there are “no limits to our ambitions” in Scotland.

The roots of this recovery lie in the 2014 independence referendum. The vote, and the SNP’s subsequent landslide victory in the 2015 general election, realigned Scottish politics along unionist and nationalist lines. Led by Ruth Davidson, the Scottish Conservatives have ably exploited the opportunity. “We said No. We meant it,” the party’s official slogan declares of Nicola Sturgeon’s demand for a second referendum. Under Ruth Davidson, the Tories have already become the official opposition at Holyrood.

Labour is torn between retaining unionists and winning back nationalists. It has been punished for its equivocation, as it is being punished over its confused response to Brexit. In April 2016, the Scottish Labour leader, Kezia Dugdale, said that it was “not inconceivable” that she could back independence if the UK voted to leave the EU (and earlier suggested that MPs and MSPs could be given a free vote). Jeremy Corbyn recently stated that he was “absolutely fine” with a second referendum being held.

“For us it’s a badge of honour but there are some people in Scottish Labour who are quite queasy about that word [unionist] and I think Jeremy Corbyn would be very queasy about it,” Adam Tomkins, a Conservative MSP for Glasgow and public law professor, told me. “Don’t forget the Northern Ireland dimension; we’ve all seen the photos of him rubbing shoulders with leading republicans. The Scottish Union is very different to the Irish Union but the word migrates.”

The irony is that Corbyn allies believed his anti-austerity, anti-Trident platform would allow Labour to recover in Scotland. Yet the pre-eminence of the national question has left it in a political no-man’s land.

In contrast to the rest of the UK, Scots backed Remain by 62 per cent to 38 per cent. Far from protecting EU membership, as David Cameron had promised in the referendum campaign, the preservation of the Union now threatened it. Theresa May has since yielded no ground, denying Scotland both a second independence referendum on terms dictated by the SNP and single market membership. But polls show no rise in support for independence.

Conservative aides believe that Sturgeon miscalculated by immediately raising the prospect of a second referendum following the Leave vote last June. Families and communities were riven by the 2014 contest. Most had little desire to disrupt the uneasy peace that has prevailed since.

Nor are the politics of Brexit as uncomplicated as some assume. Thirty-six per cent of SNP supporters voted Leave and more than a third of this bloc have since turned against independence. As elsewhere, some Remainers have accepted the result and fear the instability that secession would cause. Scotland’s trade with the UK is worth four times as much as that with the EU. Davidson, who was one of the most forceful advocates for Remain, says that pursuing independence to counter the effects of Brexit would be “stubbing your toe to then amputate your foot”.

Theresa May, who spoke of the “precious” Union when she became Prime Minister, has devoted great attention to Scotland. Cabinet ministers are instructed to develop a “Scottish plan” when they formulate policy; buildings funded by the UK government now bear its insignia. Davidson’s influence was crucial to May’s decision to retain the 0.7 per cent foreign aid commitment – an emblem of compassionate conservatism.

After a decade of SNP rule, Tory aides believe that their rival’s poor domestic record, most notably on education, is “catching up with them”. More than a year has elapsed since the Scottish Parliament passed new legislation. “We’ve got a government that simply isn’t very interested in governing,” Tomkins said. “I thought that Nicola [Sturgeon] would change that. I was wrong.” What preoccupies the SNP is the constitutional question.

Shortly after the remarkable Scottish polls, a new survey showed the Tories on course to win the most seats in Wales for the first time since 1859. For some former Labour supporters, voting Ukip is proving a gateway drug to voting Conservative.

Two referendums have now realigned politics in the Tories’ favour. The Scottish vote enabled their rebirth as the party of the Union; the Brexit vote has gifted May a project to reunite a fragmented right.

Before the 2015 general election, Labour derided the Tories as a southern English force unworthy of their official name: the Conservative and Unionist Party. Partly through accident and partly through design, May and Davidson are now reclaiming it. 

George Eaton is political editor of the New Statesman.

This article first appeared in the 27 April 2017 issue of the New Statesman, Cool Britannia 20 Years On

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