Are the ratings agencies doing us a favour?

At every stage of this crisis, action has been forced on politicians by the markets.

James Carville, Bill Clinton's pugnacious chief of staff, once said that, if he were to be re-incarnated, he would like to come back as "the bond market because then you can threaten anyone". With Europe's capitals still reeling from the decision by Standard & Poor's to downgrade the credit rating of nine eurozone countries, he might consider reincarnation as a rating agency instead.

In the European Parliament last week, German conservative Elmar Brok accused S&P of having "declared a currency war against us" and was widely applauded. Many rightly question the legitimacy of the power wielded by the big three rating agencies -- S&P, Moody's and Fitch -- which can effectively hold countries to ransom particularly as they were responsible for awarding AAA ratings to the asset backed securities made up of sub-prime mortgage loans which caused the 2008-9 crisis. Such is the herd behaviour of financial markets that a decision to downgrade a country's rating is taken as gospel truth, with the result that a nation's borrowing costs go up, putting a further squeeze on their public finances.

S&P's bombshell was merely the latest overreaction by the markets to the sovereign debt crisis -- Spain and Cyprus suffered a two notch hit despite having, like France, a far better debt and deficit situation than the UK - but it scarcely came as a surprise. Although there was cautious optimism early in the month when Spain and Italy managed successful bond auctions with the interest rate falling to its lowest level since last summer, rumours about a mass downgrade by the ratings agency were doing the rounds before Christmas.

But while "Black Friday" moved the condition of the eurozone -- as well as the rest of the EU including the UK -- from serious to critical, the political symbolism of S&P's move was as important as its implications for Europe's economies.

This is because while it is right to question the illegitimate power of the rating agencies, and their role in creating and then deepening the current crisis, it is the failure of Europe's supine political leaders that has ceded control over economic policy from democratically elected governments to rating agencies and the bond markets. For all their protestations about US rating agencies declaring war on the euro the reality is that Brok's boss, Angela Merkel's pursuit of a masochistic and fundamentally unworkable monetary policy is, in large part, responsible for S&P's decision.

In fact -- though it pains me to say it -- the rating agencies are actually doing us a favour. At every stage of this crisis action has been forced on politicians. For example, in early 2010 Merkel and most other EU leaders promised that there would never be an EU bail-out fund. Then market pressure meant that, in May 2010, the European Financial Stability Facility was created. Then they said that there would never be a permanent bail-out fund. In spring 2011 the EU treaties were amended to set up the European Stability Mechanism. Apparently there would never be a hair-cut on Greek debt. The December EU summit offered a 50 per cent right-down of Greek debt which is now being concluded between the Greeks and bond-holders. We have gradually edged towards sensible crisis-resolution not thanks to politicians but because of the financial markets.

Moreover, before we rush to condemn the markets, we should also remember that the departure (finally) of Italy's oft-disgraced but indefatigable leader Silvio Berlusconi was brought about not by one of his many scandals but because yields on Italian debt were spiralling out of control. To misquote the Sun: It was the bond market wot done it.

We are, of course, treading on very dangerous ground when unaccountable markets or neighbouring governments are able to force out elected governments but is there some truth to the idea that the debt crisis is too important to be left to politicians?

Last October Luxembourg's Prime Minister Jean Claude-Juncker came out with the phrase that defines the political response to the crisis thus far. "We all know what to do, we just don't know how to get re-elected after we've done it," he said. It's a remark that is both infuriating, but accurate. I suspect that even Merkel and Sarkozy know that their beloved fiscal compact treaty, with its rigid budget discipline, is at best a diversion and at worst a complete waste of time. The prospect of either of them admitting this before their respective elections is extremely remote. The real solution for the euro area -- which will inevitably involve a large dose of money-printing by the ECB and common Eurobonds alongside stricter rules on budgetary discipline, and possibly the exit of several countries -- seems to be too frightening a prospect for politicians to dare mention it.

But Europe's political leaders need to decide, and quickly, if they have the balls to take the difficult and unpopular decisions that are necessary if the euro is to survive and the European economy to recover. If they choose inertia then the rating agencies and bond markets will continue to decide for them. And as for those who worry about Juncker's dictum, the demise of Berlusconi should carry a salutary warning: the markets don't care if you won the last election, if you can't govern, you're a goner.

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

Getty
Show Hide image

The decline of the north's sporting powerhouse

Yorkshire historically acted as a counterweight to the dominance of southern elites, in sport as in politics and culture. Now, things are different.

On a drive between Sheffield and Barnsley, I spotted a striking painting of the Kes poster. Billy Casper’s two-fingered salute covered the wall of a once-popular pub that is now boarded up.

It is almost 50 years since the late Barry Hines wrote A Kestrel for a Knave, the novel that inspired Ken Loach’s 1969 film, and it seems that the defiant, us-against-the-world, stick-it-to-the-man Yorkshireness he commemorated still resonates here. Almost two-thirds of the people of south Yorkshire voted to leave the EU, flicking two fingers up at what they saw as a London-based establishment, detached from life beyond the capital.

But whatever happened to Billy the unlikely lad, and the myriad other northern characters who were once the stars of stage and screen? Like the pitheads that dominated Casper’s tightly knit neighbourhood, they have disappeared from the landscape. The rot set in during the 1980s, when industries were destroyed and communities collapsed, a point eloquently made in Melvyn Bragg’s excellent radio series The Matter of the North.

Yorkshire historically acted as a counterweight to the dominance of southern elites, in sport as in politics and culture. Yet today, we rarely get to hear the voices of Barnsley, Sheffield, Doncaster and Rotherham. And the Yorkshire sporting powerhouse is no more – at least, not as we once knew it.

This should be a matter of national concern. The White Rose county is, after all, the home of the world’s oldest registered football club – Sheffield FC, formed in 1857 – and the first English team to win three successive League titles, Huddersfield Town, in the mid-1920s. Hull City are now Yorkshire’s lone representative in the Premier League.

Howard Wilkinson, the manager of Leeds United when they were crowned champions in 1992, the season before the Premier League was founded, lamented the passing of a less money-obsessed era. “My dad worked at Orgreave,” he said, “the scene of Mrs Thatcher’s greatest hour, bless her. You paid for putting an axe through what is a very strong culture of community and joint responsibility.”

The best-known scene in Loach’s film shows a football match in which Mr Sugden, the PE teacher, played by Brian Glover, comically assumes the role of Bobby Charlton. It was played out on the muddy school fields of Barnsley’s run-down Athersley estate. On a visit to his alma mater a few years ago, David Bradley, who played the scrawny 15-year-old Billy, showed me the goalposts that he had swung from as a reluctant goalkeeper. “You can still see the dint in the crossbar,” he said. When I spoke to him recently, Bradley enthused about his lifelong support for Barnsley FC. “But I’ve not been to the ground over the last season and a half,” he said. “I can’t afford it.”

Bradley is not alone. Many long-standing fans have been priced out. Barnsley is only a Championship side, but for their home encounter with Newcastle last October, their fans had to pay £30 for a ticket.

The English game is rooted in the northern, working-class communities that have borne the brunt of austerity over the past six years. The top leagues – like the EU – are perceived to be out of touch and skewed in favour of the moneyed elites.

Bradley, an ardent Remainer, despaired after the Brexit vote. “They did not know what they were doing. But I can understand why. There’s still a lot of neglect, a lot of deprivation in parts of Barnsley. They feel left behind because they have been left behind.”

It is true that there has been a feel-good factor in Yorkshire following the Rio Olympics; if the county were a country, it would have finished 17th in the international medals table. Yet while millions have been invested in “podium-level athletes”, in the team games that are most relevant to the lives of most Yorkshire folk – football, cricket and rugby league – there is a clear division between sport’s elites and its grass roots. While lucrative TV deals have enriched ruling bodies and top clubs, there has been a large decrease in the number of adults playing any sport in the four years since London staged the Games.

According to figures from Sport England, there are now 67,000 fewer people in Yorkshire involved in sport than there were in 2012. In Doncaster, to take a typical post-industrial White Rose town, there has been a 13 per cent drop in participation – compared with a 0.4 per cent decline nationally.

Attendances at rugby league, the region’s “national sport”, are falling. But cricket, in theory, is thriving, with Yorkshire winning the County Championship in 2014 and 2015. Yet Joe Root, the batsman and poster boy for this renaissance, plays far more games for his country than for his county and was rested from Yorkshire’s 2016 title decider against Middlesex.

“Root’s almost not a Yorkshire player nowadays,” said Stuart Rayner, whose book The War of the White Roses chronicles the club’s fortunes between 1968 and 1986. As a fan back then, I frequently watched Geoffrey Boycott and other local stars at Headingley. My favourite was the England bowler Chris Old, a gritty, defiant, unsung anti-hero in the Billy Casper mould.

When Old made his debut, 13 of the 17-strong Yorkshire squad were registered as working-class professionals. Half a century later, three of the five Yorkshiremen selec­ted for the last Ashes series – Root, Jonny Bairstow and Gary Ballance – were privately educated. “The game of cricket now is played in public schools,” Old told me. “Top players are getting huge amounts of money, but the grass-roots game doesn’t seem to have benefited in any way.”

“In ten years’ time you won’t get a Joe Root,” Rayner said. “If you haven’t seen these top Yorkshire cricketers playing in your backyard and you haven’t got Sky, it will be difficult to get the whole cricket bug. So where is the next generation of Roots going to come from?” Or the next generation of Jessica Ennis-Hills? Three years ago, the Sheffield stadium where she trained and first discovered athletics was closed after cuts to local services.

This article first appeared in the 19 January 2017 issue of the New Statesman, The Trump era