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.

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Why are boundary changes bad for Labour?

New boundaries, a smaller House of Commons and the shift to individual electoral registration all tilt the electoral battlefield further towards the Conservatives. Why?

The government has confirmed it will push ahead with plans to reduce the House of Commons to 600 seats from 650.  Why is that such bad news for the Labour Party? 

The damage is twofold. The switch to individual electoral registration will hurt Labour more than its rivals. . Constituency boundaries in Britain are drawn on registered electors, not by population - the average seat has around 70,000 voters but a population of 90,000, although there are significant variations within that. On the whole, at present, Labour MPs tend to have seats with fewer voters than their Conservative counterparts. These changes were halted by the Liberal Democrats in the coalition years but are now back on course.

The new, 600-member constituencies will all but eliminate those variations on mainland Britain, although the Isle of Wight, and the Scottish island constituencies will remain special cases. The net effect will be to reduce the number of Labour seats - and to make the remaining seats more marginal. (Of the 50 seats that would have been eradicated had the 2013 review taken place, 35 were held by Labour, including deputy leader Tom Watson's seat of West Bromwich East.)

Why will Labour seats become more marginal? For the most part, as seats expand, they will take on increasing numbers of suburban and rural voters, who tend to vote Conservative. The city of Leicester is a good example: currently the city sends three Labour MPs to Westminster, each with large majorities. Under boundary changes, all three could become more marginal as they take on more wards from the surrounding county. Liz Kendall's Leicester West seat is likely to have a particularly large influx of Tory voters, turning the seat - a Labour stronghold since 1945 - into a marginal. 

The pattern is fairly consistent throughout the United Kingdom - Labour safe seats either vanishing or becoming marginal or even Tory seats. On Merseyside, three seats - Frank Field's Birkenhead, a Labour seat since 1950, and two marginal Labour held seats, Wirral South and Wirral West - will become two: a safe Labour seat, and a safe Conservative seat on the Wirral. Lillian Greenwood, the Shadow Transport Secretary, would see her Nottingham seat take more of the Nottinghamshire countryside, becoming a Conservative-held marginal. 

The traffic - at least in the 2013 review - was not entirely one-way. Jane Ellison, the Tory MP for Battersea, would find herself fighting a seat with a notional Labour majority of just under 3,000, as opposed to her current majority of close to 8,000. 

But the net effect of the boundary review and the shrinking of the size of the House of Commons would be to the advantage of the Conservatives. If the 2015 election had been held using the 2013 boundaries, the Tories would have a majority of 22 – and Labour would have just 216 seats against 232 now.

It may be, however, that Labour dodges a bullet – because while the boundary changes would have given the Conservatives a bigger majority, they would have significantly fewer MPs – down to 311 from 330, a loss of 19 members of Parliament. Although the whips are attempting to steady the nerves of backbenchers about the potential loss of their seats, that the number of Conservative MPs who face involuntary retirement due to boundary changes is bigger than the party’s parliamentary majority may force a U-Turn.

That said, Labour’s relatively weak electoral showing may calm jittery Tory MPs. Two months into Ed Miliband’s leadership, Labour averaged 39 per cent in the polls. They got 31 per cent of the vote in 2015. Two months into Tony Blair’s leadership, Labour were on 53 per cent of the vote. They got 43 per cent of the vote. A month and a half into Jeremy Corbyn’s leadership, Labour is on 31 per cent of the vote.  A Blair-style drop of ten points would see the Tories net 388 seats under the new boundaries, with Labour on 131. A smaller Miliband-style drop would give the Conservatives 364, and leave Labour with 153 MPs.  

On Labour’s current trajectory, Tory MPs who lose out due to boundary changes may feel comfortable in their chances of picking up a seat elsewhere. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog. He usually writes about politics.