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Europe's looming crisis

It all started with sub-prime loans in the United States. Or did it? As the IMF is called in to bail

It was Europe’s dark secret. While American banks were lending irresponsibly to homeowners who couldn’t pay, European banks were lending to emerging countries who couldn’t pay. Europe’s sub-prime crisis has now come home as heavily-indebted nations of the eastern bloc – Hungary, Ukraine, Belarus, Bulgaria, the Baltic states – are collapsing one by one into the arms of the IMF. “Icelandisation” is the new spectre stalking Europe.

And, as with sub-prime in urban America, this latest crisis was shockingly predictable. I visited Latvia at the height of the credit bubble 18 months ago, and it was clearly an accident waiting to happen. Riga, the capital, was bristling with upmarket shopping malls and classy bars that were all quite empty. Stalin-era flats were being sold for $200,000 in a country where the average wage was less than $400 a month. Latvia has hardly any industry, no energy and few natural resources apart from trees. But such was the irrational exuberance of foreign banks like Swedbank, it was awash with credit.

According to the Bank for International Settlements, western European banks have lent more than $1.5trn to eastern Europe. Austria has loans equivalent to 80 per cent of GDP and stands to make huge losses as Hungary and Ukraine collapse.

This week, the Austrian government had to cancel an auction of government bonds because it could not be sure that investors would buy them. It is not inconceivable that Austria itself could end up needing to be rescued.

Other European countries implicated in global sub-prime include Spain, which has loaned immense sums ($316bn) to Latin American countries such as Argentina. Britain has $329bn tied up in Asia - or did until values collapsed in the Asian stock market rout. Japan's Nikkei index fell to a 26-year low this week, wiping out tens of billions of yen. The losses are now winging their way home to British pension funds and banks such as the Royal Bank of Scotland and HSBC.

Banks behaving badly, then, but what's new there? Well, the Bank of England told us this week that global losses so far from the financial crisis amount to $2.8trn. But this includes only a fraction of the likely losses from global sub- prime, which have yet to land on balance sheets.

Until last week's rout in the Asian bourses, there were still economists who believed that emerging markets would not be greatly affected by the credit crunch. But the theory that developing countries, led by China and India, have "decoupled" from the west, no longer holds water. It is clear that they have been dependent on consumer spending in America and Europe all along - and now that western consumers are staying away from the shops, no one is buying their goods. The Baltic Dry Shipping Index, which tracks the cost of hiring ships for international trade, has fallen by 79 per cent this year, itself a signal of a severe global recession.

Gordon Brown's hints that Britain might be able to spend its way out of this recession has to be considered in this light. There is no guarantee, in such a climate, that the British government would be able to borrow sufficient to pay for further bank rescues (they are sure to come), along with the cost of three million unemployed plus a programme of Keynesian infrastructure spending, however desirable that may be.

Investors are already shunning the pound because of anticipated losses from the UK property crash. Sterling has fallen 28 per cent this year, further than in the Exchange Rate Mechanism crisis of 1992, when interest rates rose to 15 per cent. We could be heading for a classic 1960s run on the pound.

The government had hoped that a devalued pound would stimulate exports and pull Britain out of recession, as happened after Black Wednesday 16 years ago, but the economic climate is different. We make few things to export now and the world is not in a buying mood anyway. And it has had quite enough of our "innovative" financial services. Thus Britain's current account deficit of 6 per cent - what used to be called loosely the balance of payments - has suddenly re-emerged as a major economic issue. Borrowing may be a good thing in a recession, but international financiers, sovereign wealth funds, hedge funds and banks may not agree.

The UK has the honour of having been the last G7 country to call in the IMF - during the 1976 sterling crisis - and while the government is not yet filling in the application forms, Britain's finances would not impress the Fund's economists. Standard IMF lending conditions are: privatisation, cuts in government spending and increased interest rates.

We are going in precisely the opposite direction, slashing interest rates, borrowing to spend and nationalising the banks.

Seen another way, this is only an indication of the extent to which the IMF is no longer fit for purpose in the Great Deleveraging. In recent years, the Fund has been an engine of Wall Street neoliberalism and financial deregulation, which leaves it ill-equipped to deal with the new international environment of deflation and banking crashes. In addition, there is a fiscal crisis facing the IMF. It has only about $250bn in reserves to throw at a rolling financial crisis that has now engulfed half the planet, from Iceland to Pakistan. Gordon Brown has called on energy-exporting nations to stump up more cash for the Fund, but there is a strong case, too, for reviewing how the IMF operates. Set up as part of the Bretton Woods financial system in 1944, the Fund was designed to cope with episodic currency crises. It is now having to deal with potential insolvencies in countries the size of Argentina as well as bailing out entire regions such as eastern Europe.

It will have to be very much better capitalised if it is going to perform this role, and it will have to abandon much of its free-market ideology.

We need a new set of interventionist institutions capable of managing financial rescues on an international scale.

Ultimately, what is needed is an international central bank with the resources to provide liquidity guarantees, recapitalise banks and regulate international financial flows. This is an immense task, and the world may not yet be ready for it. But it is not a new idea: John Maynard Keynes argued for precisely this during the Bretton Woods negotiations in 1944. He even suggested a world reserve currency "bancor". This is the kind of thinking we need today.

The alternative, if nothing is done, is international tension, even war. Consider failing Ukraine with its large Russian population and its dependency on Russia for energy supplies, right at the moment when Russian dreams of becoming an energy superpower have been dashed by the collapse of the oil price bubble. Or look at nuclear Pakistan, where the entire country is disintegrating in financial chaos. And what about China? Will all those unemployed workers - where half the toy manufacturers have gone bust - go peacefully back to the paddy fields?

When heads of the "G20" group of nations meet in Washington on 15 November for what is being called "Bretton Woods II" they will not just be dealing with a banking crisis. They will be deciding the future of civilisation.

This article first appeared in the 03 November 2008 issue of the New Statesman, Israel v Hamas

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The age of lies: how politicians hide behind statistics

Perhaps it is time to combine our Trump-era, heightened sensitivity to untruths with a new broadcasting technique or two.

The small slabs of crude election soundbites, with extra ornamentation in the form of half-true and meaningless headline statistics, clunk across the airwaves, and we grimace. The dead prose reaches us umpteen times a day – “an economy that works for all”, “the many and not the few”, “work is the way out of poverty”, “more being spent on our schools than ever before”, “the NHS is treating more patients than ever ­before”, “fastest growth rate in Europe”, “the national interest”, “the most ­important election in my lifetime” – and yes, let’s hear it for “strong and stable leadership”.

On 30 April, Andrew Marr tried a little witty and civilised pre-emptive mocking to stop Theresa May using soundbites in his interview with her, but it did not work because it could not work. Embarrassment about clichés and almost idiotic numbers is not what democratic politicians worry about at election time. Many of us may pine for the old American game-show device – where, for failing to amuse and divert the audience, contestants are removed from the fray by a man hammering a gong – but that is not on offer and, in election mode, the politicians will do as they have long learned to do. They will listen to the Lynton Crosbys and Seumas Milnes of this world and plough on – and on.

The soundbites are largely vacuous and we are more noisily sardonic about them than three decades ago (hooray for media literacy) but they aren’t worse than normal. There is no point expecting the debate to run on the lines of Gladstone’s Midlothian campaign 140 years ago, when he charged around Britain giving five-hour speeches – richly informed by Liberal philosophy – which did the trick for him and his party.

The clichés are, naturally, often interchangeable. Everybody running for high political office could quite contentedly utter any or all of the above phrases, though I concede it doesn’t require an inspired analyst of modern British politics to know what Theresa May is trying to do with her leadership riff – nor Jeremy Corbyn with his “rule for the many and not the few”, a phrase that has been used religiously since the adoption of universal suffrage. Only Jacob Rees-Mogg would put it to one side.

I spent almost 30 years at the BBC – working with a cadre of (mostly) hugely talented and impartial presenters and editors trying to find ways of injecting a bit more surprise or rigour into political interviews. (Surprise and rigour are often not the same thing.) I recall David Dimbleby reducing Alastair Campbell to semi-public fury in 1997 by excavating Tony Blair’s early political career and finding, neither surprisingly nor, in my view, particularly reprehensibly, that he had said Michael Foot-like things in a Michael Foot-like era. Oddly, nobody had thought to do this after he had been elected leader three years earlier, so Dimbleby’s approach to Blair had an element of ­surprise. And then there was John Humphrys’s relentless needling of Gordon Brown for his comic refusal after the 2008 financial crash to use the word “cuts” to describe what might have to happen to reduce the budget deficit, or even to agree with his own chancellor, Alistair Darling, that the global economic outlook was very bad. Brown had an on-air mega-curdle.

We know the score – the politicians find the rhetorical and statistical position that provides the best short-term defensive crouch, while the interviewer at least wants to make sure that the audience knows the question posed is relevant, fair and, if need be, that it has been dodged. Time presses on both participants – but the impact of the compression is unequal. The interviewee usually has the upper hand. In her early period Margaret Thatcher, who was a good deal more nervous than her subsequent reputation for clarity and authority would suggest, might well have been the all-time queen of interview delay tactics. However, most interviewees know that once they have found an answer to a question the first thing to do is to pad it out in case the next question is a little more difficult.

I am not outraged by any of this; nor do I believe these encounters should be dismissed as sterile, or that we should be contemptuous of the skills involved on either side of the exchange. The sort of one-sided triumph enjoyed by LBC’s Nick Ferrari with Diane Abbott is rare, and her numerical amnesia over policing made a whole argument go kerplunk – but even in more orthodox interviews you can often detect at the very least a broad weakness in a broad argument.

To my ear Corbyn sounds perpetually unsteady on defence policy (see his Marr interview in the first week of the campaign) and public finances, and neither May nor David Cameron before her manages much fluency on the impact of cuts on the working poor once they have uttered that threadbare soundbite about work being the route out of poverty. Would that it were so simple.

Our willingness to dismiss as boring these interviews, the staple of daily current affairs programmes, is overdone. And we have been a little graceless about the extent to which senior UK politicians do – or did – engage in at least some forms of public debate. Anyone who follows the US media will know how rare it has always been for senior members of the administration and White House staff to expose themselves to the sort of scrutiny still supplied by the Sunday political shows, Radio 4 current affairs programmes, Newsnight or Channel 4 News.

For decades, senior politicians in the UK turned up in the studios – often with scarcely concealed irritation – but they went through with it. In part because it was expected and in part out of self-interest. Good interview performances could lead to rapid promotion. Iain Duncan Smith was (you may be surprised by this) particularly effective in his early years at advocating his causes, and his party’s, in front of a microphone. But the studios did for him when he became Tory leader. As it turned out, his failings were more obvious when confronted by a skilled interviewer than in the House of Commons. His nervous coughing finally caught up with him one morning on the Today programme, and that was that.

Duncan Smith and Abbott are far from alone in seeing their currency plummet as a result of losing the plot in an interview. Harriet Harman, normally a highly fluent and agile politician, was sacked as social security secretary in 1998 after a grim outing, at least for her, with John Humphrys – caused not by his abrasiveness nor by any Abbott-like forgetfulness, but by her almost tangible unhappiness with a New Labour policy she was defending.

Even now, on BBC Question Time, some heavyweights will turn up only to be mauled by the voters on topics a long way away from the heart of their portfolio. Yes, they get copious notes from party researchers and have endless rehearsals to minimise the chance of saying anything too intellectually lively: but they should nevertheless get credit for risking it in the first place.

However, outside election time this tradition of broadcasting interrogation and debate, not much more than 50 years old, is under stealthy attack. The presenting team on Today is seriously good, but it is hard not to notice that the heavy hitters turn up less often for their ten minutes of duelling; similarly with Newsnight and Channel 4 News.

The Prime Minister’s Olympian approach to this sort of public engagement aggravates what was already a problem. The broadcasters may be losing ground. In this election there will be no head-to-head leaders’ debates featuring Labour and the Conservatives, and there is no great uproar about it. As it happens, I don’t believe that their absence is a disaster – not least because the format of individual leaders confronting an engaged Question Time audience one at a time (a “tradition” that began in 1997) provides far more substance and revelation than the 2010 or 2015 leaders’ debates did.

In the meantime, what can be done to the interview to improve the quality of public debate? Forcing out the clichés is not a realistic goal. Yet perhaps it is time to combine our Trump-era, heightened sensitivity to untruths with a new broadcasting technique or two. The BBC Trust (which I was part of for two years until it ceased to exist in April) commissioned its final independent editorial report on the BBC’s use of statistics from a panel of experts chaired by the former UK chief statistician Jil Matheson.

It is a superb piece of work. Above all it pleads with the BBC to do more to put statistics in context. The work was largely complete before the EU referendum so it did not pass judgement about either the veracity of the Brexiteers’ “extra £350m for the NHS” claim or the BBC’s coverage of that claim. I listened and watched a lot and, contrary to the views of many leading members of the Remain campaign, the BBC seemed to me to have consistently signalled to the audience the risible nature of the figure, if not as rudely as many would have liked.

Yet there is a different perspective on that cause célèbre. Only very rarely did the BBC on air (or anyone else, for that matter) compare the sums involved with total UK public expenditure: a net annual payment to the EU of about £8.5bn, compared to public expenditure of about £785bn. This £8.5bn is not a trivial sum – and it is likely to sound gargantuan to an unskilled worker on low wages in Hartlepool – but it hardly threatens the nation’s existence. We will have to think about that number all over again when the EU divorce bill gets paid.

In the past few years there has been a welcome growth online of fact-checking websites that get to grips with some of the half-sense or nonsense uttered – sometimes deliberately – in public debate. Among the broadcasters, Channel 4 News got in first with “FactCheck” and deserves great credit for having done so. The BBC has Reality Check; there are also the non-aligned Full Fact and others. And the Institute for Fiscal Studies (IFS) sits as a mega-authority when it pronounces on individual economic statistics. (It was a particularly dispiriting episode when the IFS took a pounding during the EU campaign.)

The good newspapers and the broadcasters have correspondents who can – and do – understand the context in which statistical argument takes place. They know the difference between a big number and a not-so-big number, the difference between an aggregate spending figure and spending per head of population, the difference in importance between a one-month figure and a trend – and a trend that does not change much over time.

This is all good, and better than it used to be. But perhaps more of this rigour can be woven into what is still the dominant form of political accountability in broadcasting: the interview.

So let us try a thought experiment. Imagine (though we don’t really have to imagine) that the Health Secretary, Jeremy Hunt, comes into a studio to say, surprise, surprise, that more is being spent in real terms on the NHS than ever before. Imagine that he is told there will be no questions on anything else until he can answer, let’s say, two obvious supplementary questions: in the course of the past 60 years how often has his assertion not been true? (Answer, says the IFS: four times, one of which was 2011/12.) And what has been the growth in per capita NHS spend, in real terms, since 2009/10, compared to the previous 15 years or so? (Answer: 0.6 per cent, as opposed to 5.4 per cent.) Answering these would show that his boast is one that almost all of his predecessors could have made, and also that the Conservative-led coalition was less generous to the health service than the preceding Labour government. It would be absolutely fair for Jeremy Hunt to respond vigorously about the need to cut the deficit or even to make points about who was in government when the crash happened – but he could not be allowed to get away with statistical near-rubbish.

Similarly, the mantra on English education (“Our schools are getting more money than ever before”) is a waste of air. It’s not that the cuts are “vicious” – just that the assertion when put in context is gibberish. The economy is growing and the school population is growing, fast. So if we were not spending more in total, and in real terms, then the cuts would be vicious. And yet, per head, there will be less in real terms for pupils. Period.

The front-line interviewers I know best are very skilled journalists and they often do try to get a jab in when the numerical nonsense gets going – but they have to move on, whether to other urgent matters or to seek a news headline from the interview, and there is not enough jeopardy for the press officer or spin doctor who wrote the politician’s brief to desist from writing the same stuff next time around.

There may be other ways of levelling up matters. The interview could proceed as normal; but at the end of it up could pop, say, Tim Harford (of the brilliant statistics programme More or Less on Radio 4) to put in the necessary corrections. It would have to be done within a few minutes or else the impact would dissipate. From time to time, Harford or his equivalent does appear after a political interviewee has spouted statistically illiterate twaddle – but not often enough, and usually this happens long after the attempted mugging of intelligent debate. Too little, too late.

It would be obligatory to ensure that this type of treatment, particularly at election time, was meted out to all the parties – but outside the election it is the government of the day and its news departments that are going to have to face most of the music. Fair enough.

My suggestion is not put forward because I am advocating a particular party’s reading of the state of the nation (or nations). There is no monopoly on vice. We should not forget Labour’s “triple counting” of health service spending after 1997 even if Blair/Brown subsequently, in benign economic circumstances, did indeed put their foot on the health-spending accelerator.

Rather, when the election dust settles and the media seminar post-mortems crank up yet again – about the level of turnout, political ennui, the particular disengagement of the young, the coverage of the leaders, the role of opinion polls and other staples – we need to keep working on how to improve the quality of public debate. It is not all awful, and a stylised contempt for what is good is itself corrupting of democracy. But the numbers nonsense needs fixing. 

Mark Damazer is Master of St Peter’s College, Oxford, and was the controller of BBC Radio 4 from 2004 to 2010

This article first appeared in the 18 May 2017 issue of the New Statesman, Age of Lies

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