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

Getty
Show Hide image

Is Labour really as doomed as it seems? The polls have got it wrong before

Pollsters often overrate Labour's performance. But in two elections, the opposite happened. 

Few moments in the Labour Party’s history can have felt as gloomy as this one. Going into a general election that almost no-one expects them to win, their overall opinion polling is appalling. Labour seems becalmed in the mid-20s; the Conservative Party has rocketed into the mid- to high-40s, and has even touched 50 per cent in one survey.

The numbers underlying those voting intention figures seem, if anything, worse. The Conservatives have huge leads on leadership and economic competence – often even more reliable indicators of election results than the headline numbers. High turnout groups such as the over-65s have turned against Labour in unprecedented numbers. Working-class Brits have swung towards the Conservative, placing once-safe Labour seats in danger. There are limited, but highly suggestive, hints among the data that the swing against Labour is higher in its own marginal seats – a potentially toxic development for any party seeking to hang on to MPs, as Conservatives defending apparently impregnable majorities under John Major in 1997 would attest.

All the while, Labour seems confused about what it is really for. Try as he might, Keir Starmer’s term as Labour’s shadow Brexit secretary has been marred by a fatal confusion and indecision about the extent of the UK’s future engagement with the European Union’s single market. Labour seems neither the party of Brexit nor of Remain, but one determined to irritate as many voters as possible. A similar situation reigns in Scotland, where nationalists under Nicola Sturgeon face Conservative Unionists led by Ruth Davidson, and Labour struggles even to gain a hearing.

Many Labour policy offers – free primary school meals for all, the promise of free university tuition, nationalising the railways, upholding the triple lock of pensions, opposing National Insurance rises for the self-employed – are pleasingly universal, while in isolation appealing to different electoral groups. But together, they represent a massive shift of resources to higher-income Brits that would take huge tax rises to offset. Labour is dangerously close to offering a regressive package under the guise of left-wing radicalism. This is pretty much as far from the British people’s electoral sweet spot as it is possible to imagine.

It is therefore little wonder that Labour lags so far behind Theresa May’s Conservatives. Even some Labour strongholds appear likely to fall - regional polls from London and Wales suggest that many Labour seats will be lost in the party’s remaining citadels. Brutal stories are already coming in from the campaign trail. Rumours fly of truly epochal losses - though it is important to note that other anecdotes seem much less dramatic.

Still, there are other indicators – all too easily missed in the heat of the moment – that point in the other direction. Labour’s performance in local by-elections has been dire for the main opposition party, but the swing towards the Conservatives has been running at "only" just over 2 per cent. The party has certainly suffered some big swings against it, and it has lost wards to the Conservatives in local authorities as varied as Hertfordshire, Harrow and Middlesborough. But there is no evidence that its vote has collapsed on the scale that some of the polling suggests.

Relatively recent history should also give us pause before we write Labour off altogether. Consider the last two general elections in which Labour had near-death experiences, in both 1983 and 2010. Britain’s third party - first the Liberal-SDP Alliance, and then the Liberal Democrats - seemed about to overtake Labour in the popular vote, and steal scores of seats from the bigger progressive party. On both occasions, Labour was able to draw on hitherto unguessed-at wells of cultural identity and strength to pull away right at the campaign’s end. These are in fact the only elections in recent times when the polls have underrated, rather than overestimated, Labour’s likely score. It might be that the same phenomenon emerges this time.

The Conservatives’ huge lead right now has not resulted from a sudden collapse in Labour support, but rather from the United Kingdom Independence Party’s well-publicised implosion. If anything, after about a year of steady decline, the last week or two has seen Labour’s twelve months of slow deflation grind to a halt. Labour’s numbers have even ticked up a point or two as some voters appear to rally around "their" flag. It might be that, as you squeeze the Labour vote down, it becomes more resilient to further shrinkage.

As the Conservatives try to push into Labour’s heartlands, they might find it harder and harder to persuade voters across, from Ukip as well as from Labour. The Conservatives’ image is still far from good in such communities, whatever the underanalysed and separate appeal of PM May as a strong, considered leader in need of a negotiator’s mandate in Europe. Voters might be attracted to May, and repelled by Corbyn - that does not necessarily mean that they will actually vote Conservative. There is little evidence, so far, of any realignment in how voters see themselves – whether they "are" Labour or Conservative, rather than the more ephemeral question of whether they will simply vote for those parties.

Humans always look for patterns. Experts are no exception, while journalists and commentators can always jump to rapid – but wrong – conclusions in the overexcited heat of an election campaign. So it is with the threat of a Labour catastrophe on 8 June. The danger of just such a result is definitely there. But some of the data points we already have, and two recent elections at which Labour walked close to an abyss, cast a little bit of doubt on the inevitability of such an outcome. There are still just over six weeks to go. A Conservative landslide is still quite likely. But it is not certain. We should keep an eye out for the many hints that May’s gamble might end in a rather less crushing victory than we have been led to expect.

Glen O’Hara is Professor of Modern and Contemporary History at Oxford Brookes University. He blogs, in a personal capacity, at Public Policy and the Past. He is the author of a series of books about modern Britain, including The Politics of Water in Post-War Britain (Palgrave Macmillan: forthcoming, May 2017).

0800 7318496