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 8 bits of good news about integration buried in the Casey Review

It's not all Trojan Horses.

The government-commissioned Casey Review on integration tackles serious subjects, from honour crimes to discrimination and hate crime.

It outlines how deprivation, discrimination, segregated schools and unenlightened traditions can drag certain British-Pakistani and Bangladeshi communities into isolation. 

It shines a light on nepotistic local politics, which only entrench religious and gender segregation. It also charts the hurdles faced by ethnic minorities from school, to university and the workplace. There is no doubt it makes uncomfortable reading. 

But at a time when the negative consequences of immigration are dominating headlines, it’s easy to miss some of the more optimistic trends the Casey Report uncovered:

1. You can always have more friends

For all the talk of segregation, 82 per cent of us socialise at least once a month with people from a different ethnic and religious background, according to the Citizenship Survey 2010-11.

More than half of first generation migrants had friends of a different ethnicity. As for their children, nearly three quarters were friends with people from other ethnic backgrounds. Younger people with higher levels of education and better wages are most likely to have close inter-ethnic friendships. 

Brits from Black African and Mixed ethnic backgrounds are the most sociable it seems, as they are most likely to have friends from outside their neighbourhood. White British and Irish ethnic groups, on the other hand, are least likely to have ethnically-mixed social networks. 

Moving away from home seemed to be a key factor in diversifying your friendship group –18 to 34s were the most ethnically integrated age group. 

2. Integrated schools help

The Casey Review tells the story of how schools can distort a community’s view of the world, such as the mostly Asian high school where pupils thought 90 per cent of Brits were Asian (the actual figure is 7 per cent), and the Trojan Horse affair, where hardline Muslims were accused of dominating the curriculum of a state school (the exact facts have never come to light). 

But on the other hand, schools that are integrated, can change a whole community’s perspective. A study in Oldham found that when two schools were merged to create a more balanced pupil population between White Brits and British Asians, the level of anxiety both groups felt diminished. 

3. And kids are doing better at school

The Casey Report notes: “In recent years there has been a general improvement in educational attainment in schools, with a narrowing in the gap between White pupils and pupils from Pakistani, Bangladeshi and African/Caribbean/Black ethnic backgrounds.”

A number of ethnic minority groups, including pupils of Chinese, Indian, Irish and Bangladeshi ethnicity, outperformed White British pupils (but not White Gypsy and Roma pupils, who had the lowest attainment levels of all). 

4. Most people feel part of a community

Despite the talk of a divided society, in 2015-16, 89 per cent of people thought their community was cohesive, according to the Community Life Survey, and agreed their local area is a place where people from different backgrounds get on well together. This feeling of cohesiveness is actually higher than in 2003, at the height of New Labour multiculturalism, when the figure stood at 80 per cent. 

5. Muslims are sticklers for the law

Much of the Casey Report dealt with the divisions between British Muslims and other communities, on matters of culture, religious extremism and equality. It also looked at the Islamophobia and discrimination Muslims face in the UK. 

However, while the cultural and ideological clashes may be real, a ComRes/BBC poll in 2015 found that 95 per cent of British Muslims felt loyal to Britain and 93 per cent believed Muslims in Britain should always obey British laws. 

6. Employment prospects are improving

The Casey Review rightly notes the discrimination faced by jobseekers, such as study which found CVs with white-sounding names had a better rate of reply. Brits from Black, Pakistani or Bangladeshi backgrounds are more likely to be unemployed than Whites. 

However, the employment gap between ethnic minorities and White Brits has narrowed over the last decade, from 15.6 per cent in 2004 to 12.8 per cent in 2015. 

In October 2015, public and private sector employers responsible for employing 1.8m people signed a pledge to operate recruitment on a “name blind” basis. 

7. Pretty much everyone understand this

According to the 2011 census, 91.6 per cent of adults in England and Wales had English as their main language. And 98.2 per cent of them could speak English. 

Since 2008-2009, most non-European migrants coming to the UK have to meet English requirements as part of the immigration process. 

8. Oh, and there’s a British Muslim Mayor ready to tackle integration head on

The Casey Review criticised British Asian community leaders in northern towns for preventing proper discussion of equality and in some cases preventing women from launching rival bids for a council seat.

But it also quoted Sadiq Khan, the Mayor of London, and a British Muslim. Khan criticised religious families that force children to adopt a certain lifestyle, and he concluded:

"There is no other city in the world where I would want to raise my daughters than London.

"They have rights, they have protection, the right to wear what they like, think what they like, to meet who they like, to study what they like, more than they would in any other country.”

 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.