Osborne needs to launder a euro bailout through the IMF

The Chancellor cannot be seen to throw good pounds after bad euros, but nor can he stand by as the s

Given the difficulty the government had last time it tried to get an increase in Britain's contributions to the International Monetary Fund through parliament, George Osborne is unlikely to relish the prospect of repeating the exercise.

The fact that the Chancellor, speaking in Hong Kong, has urged G20 leaders to help boost IMF cash fire power is testimony to how severe the threat posed by continuing crisis in the eurozone is to the global economy. Britain would be prepared to chip in if other countries did too in order "to promote the economic stability from which we all benefit," Osborne said. This follows similar comments in a BBC interview yesterday and to Parliament last week indicating that the government is preparing the ground for a potentially unpopular IMF cash infusion.

The epicentre of instability is, of course, the eurozone, but Osborne cannot make an explicit commitment to bailout Britain's continental neighbours for fear of aggravating eurosceptic Tory backbenchers. Labour has also made it clear that it would oppose a direct transfer of UK money to a dedicated EU bailout fund - even one administered by the IMF. If enough Tories rebelled, a vote in parliament that ended up being framed in terms of whether or not good British pounds should be thrown after bad euros would be very tricky for the government. So any UK assistance to precarious eurozone economies has to be laundered through the general IMF kitty. (In practice that is hardly different from contributing to a specific euro bailout fund and eurosceptic rebels are unlikely to accept the distinction.)

Osborne recognises that economics, trade and geography make it a matter of some urgency for Britain that the IMF is adequately resourced to help potentially insolvent eurozone countries. But Conservative party politics - and the slightly poisoned atmosphere of Britain's diplomatic relationships within the EU - make it hard for him to take any kind of lead in getting the crisis resolved. It might, in any case, be too late.

The round of European sovereign credit downgrades last week had a knock-on effect of damaging the creditworthiness of the European Financial Stability Facility (EFSF) - the vehicle that is meant to administer bail out funds to keep the euro area functioning. There isn't anywhere near enough cash in the EFSF to cover the debts of all of the distressed euro member states, so the idea was always that the fund would trade on the aggregate creditworthiness of contributing countries to raise more capital. If the states funding the EFSF are themselves facing downgrade, the whole thing looks unsustainable.* (Germany is an exception, being a big economy with a solid credit rating, but Berlin is unwilling to evacuate its budget for the collective European cause.)

In other words, the fact that the euro rescue plan was really just a kind of pyramid scheme in which indebted countries promise to bail each other out by borrowing money is being exposed. That is another reason why the IMF will have to get more involved over the next few weeks.

Meanwhile, the draft eurozone-plus treaty, enforcing fiscal discipline and envisaging greater budget coordination between member states, is looking ever more irrelevant to the immediate crisis. It imposes rules to prevent a recurrence of the current situation, ignoring the facts that (a) such rules already existed and were ignored and (b) the current situation is upon us and cannot be cancelled out by wishing the rules had been obeyed more rigorously in the past. The horse has bolted and EU leaders are arguing about what kind of lock to put on the stable door.

*Update: The EFSF has been downgraded by Standard & Poors.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

Photo:Getty
Show Hide image

Why isn't Labour putting forward Corbynite candidates?

Despite his successes as a candidate, the organisational victories have gone the way of Corbyn's opponents. 

The contest changes, but the result remains the same: Jeremy Corbyn’s preferred candidate defeated in a parliamentary selection. Afzhal Khan is Labour’s candidate in the Manchester Gorton by-election and the overwhelming favourite to be the seat’s next MP.

Although Khan, an MEP, was one of  the minority of Labour’s European MPs to dissent from a letter from the European parliamentary Labour party calling for Jeremy Corbyn to go in the summer of 2016, he backed Andy Burnham and Tom Watson in 2015, and it is widely believed, fairly or unfairly, that Khan had, as one local activist put it, “the brains to know which way the wind was blowing” rather than being a pukka Corbynite.

For the leader’s office, it was a double defeat;  their preferred candidate, Sam Wheeler, was kept off the longlist, when the party’s Corbynsceptics allied with the party’s BAME leadership to draw up an all ethnic minority shortlist, and Yasmine Dar, their back-up option, was narrowly defeated by Khan among members in Manchester Gorton.

But even when the leadership has got its preferred candidate to the contest, they have been defeated. That even happened in Copeland, where the shortlist was drawn up by Corbynites and designed to advantage Rachel Holliday, the leader’s office preferred candidate.

Why does the Labour left keep losing? Supporters combination of bad luck and bad decisions for the defeat.

In Oldham West, where Michael Meacher, a committed supporter of Jeremy Corbyn’s, was succeeded by Jim McMahon, who voted for Liz Kendall, McMahon was seen to be so far ahead that they had no credible chance of stopping him. Rosena Allin-Khan was a near-perfect candidate to hold the seat of Tooting: a doctor at the local hospital, the seat’s largest employer, with links to both the Polish and Pakistani communities that make up the seat’s biggest minority blocs.  Gillian Troughton, who won the Copeland selection, is a respected local councillor.

But the leadership has also made bad decisions, some claim.  The failure to get a candidate in Manchester Gorton was particularly egregious, as one trade unionist puts it: “We all knew that Gerald was not going to make it [until 2020], they had a local boy with good connections to the trade unions, that contest should have been theirs for the taking”. Instead, they lost control of the selection panel because Jeremy Corbyn missed an NEC meeting – the NEC is hung at present as the Corbynsceptics sacrificed their majority of one to retain the chair – and with it their best chance of taking the seat.

Others close to the leadership point out that for the first year of Corbyn’s leadership, the leader’s office was more preoccupied with the struggle for survival than it was with getting more of its people in. Decisions in by-elections were taken on the hop and often in a way that led to problems later down the line. It made sense to keep Mo Azam, from the party’s left, off the shortlist in Oldham West when Labour MPs were worried for their own seats and about the Ukip effect if Labour selected a minority candidate. But that enraged the party’s minority politicians and led directly to the all-ethnic-minority shortlist in Manchester Gorton.

They also point out that the party's councillor base, from where many candidates are drawn, is still largely Corbynsceptic, though they hope that this will change in the next round of local government selections. (Councillors must go through a reselection process at every election.)

But the biggest shift has very little to do with the Labour leadership. The big victories for the Labour left in internal battles under Ed Miliband were the result of Unite and the GMB working together. Now they are, for various reasons, at odds and the GMB has proven significantly better at working shortlists and campaigning for its members to become MPs.  That helps Corbynsceptics. “The reason why so many of the unions supported Jeremy the first time,” one senior Corbynite argues, “Is they wanted to move the Labour party a little bit to the left. They didn’t want a socialist transformation of the Labour party. And actually if you look at the people getting selected they are not Corbynites, but they are not Blairites either, and that’s what the unions wanted.”

Regardless of why, it means that, two years into Corbyn’s leadership, the Labour left finds itself smaller in parliament than it was at the beginning.  

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to British politics.