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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 love affairs of Stan Laurel: "If I had to do it over again things would be different"

A romantic who craved stability, the English comedian Stan Laurel led a Hollywood love life as chaotic as his films’ plots

The comedian Stan Laurel was, even by the standards of his time, a prodigious correspondent. The Stan Laurel Correspondence Archive Project contains more than 1,500 artefacts, and these are only the documents that have so far been traced, as many of his early missives appear to have been lost. He was, quite literally, a man of letters.

His punctiliousness about correspondence can be ascribed, at least in part, to his natural good manners, but letters were also a means of filling his long retirement. He outlived his screen partner Oliver Hardy – “Babe” to his friends – by almost eight years but refused all offers of work during that time. Instead, heartbreakingly, he wrote sketches and routines for the duo that would never be performed. It was, perhaps, a way for Laurel to speak with Babe again, if only in his head, until he followed him into the dark on 23 February 1965.

Though Laurel and Hardy have never been forgotten, they are currently undergoing an energetic revival. Stan and Ollie, a film dramatisation of their later years, starring Steve Coogan as Stan Laurel and John C Reilly as Oliver Hardy, is scheduled for release in 2018. Talking Pictures TV is to start showing the duo’s long features from September. Sixty years since Oliver Hardy’s death on 7 August 1957, the duo will soon be rediscovered by a new generation.

They were such different men and such unlikely partners. Laurel was born Arthur Stanley Jefferson in 1890, in Ulverston, then part of Lancashire, the son of AJ, a theatre manager, and Margaret, an actress. He made his stage debut at the age of 16 and never again considered an alternative profession, eventually leaving for the United States to act on the vaudeville circuit before finally ending up in the nascent Hollywood. Norvell Hardy, meanwhile, came from Harlem, Georgia, the son of a slave overseer who died in the year of his son’s birth, 1892, and whose first name, Oliver, Norvell took as his own.

Hardy, who had worked as a singer and as a projectionist, became a jobbing actor, often being cast as the “heavy”because of his bulk. Laurel, by contrast, was groomed for stardom, but it repeatedly slipped through his fingers. Unlike Chaplin’s Tramp, or the boater-and-glasses-wearing Harold Lloyd, he had no persona. Only when Hal Roach paired him with Hardy did he finally find a mask that fitted, and thus a professional marriage slowly grew into a friendship that would endure until Babe’s death.

Laurel was the creative engine of the partnership, creating storylines and gags, intimately involving himself in the directing and editing of each film, but Hardy was the better, subtler actor. Laurel was a creature of the stage, trained to act for the back rows; Hardy, by contrast, had watched countless films from his projectionist’s perch and knew that the smallest of gestures – the raising of an eyebrow, a glance flicked in the audience’s direction – would be writ large on the screen. Laurel recognised this and tailored his scripts to his partner’s strengths.

Thus – and unusually for such partnerships – they never argued with each other about either screen time or money, despite the notorious parsimony of their producer Hal Roach, who paid them what he could get away with and would not let them negotiate their contracts together in order to weaken their bargaining position. Indeed, apart from one contretemps about the degree of dishevelment permitted to Babe’s hair, it seems that Laurel and Hardy never argued very much at all.

And then Babe died, leaving his partner bereft. What was a man to do but remember and write? So Laurel, always a prodigious correspondent, spent much of his retirement communicating with friends and fans by post. It helped that he had a curious and abiding affection for stationery. During one of the many interviews he conducted with John McCabe, his first serious biographer, Laurel revealed a wish to own a stationery store. Even he didn’t seem sure exactly why, but he admitted that he was quite content to while away entire afternoons in examining grades of paper.

Since letters were Laurel’s primary source of contact with the world, much of his writing is quite mundane. He deals with repeated inquiries about the state of his health – “I’m now feeling pretty good,” he informs a Scottish fan called Peter Elrick on 8 June 1960. “I suffered a slight stroke in ’55, fortunately I made a good recovery & am able to get around quite well again, of course I shall never be in a condition to work any more.” He notes the passing of actors he has known (to Jimmy Wiseman on 29 January 1959: “That was a terrible thing about [Carl] ‘Alfalfa’ Switzer wasn’t it? All over a few dollars’ debt he had to lose his life. I knew him very well as a kid in Our Gang films…”), answers queries about his films and his late partner (to Richard Handova on 21 March 1964: “Regarding the tattoo on Mr Hardy’s right arm – yes, that was an actual marking made when he was a kid – he always regretted having this done”) and often writes simply for the pleasure of having written, thus using up some stationery and enabling him to shop for more (“Just a few more stamps – hope you’re feeling well – nothing much to tell you, everything is as usual here,” represents the entirety of a letter to Irene Heffernan on 10 March 1964).

In researching my novel about Stan Laurel, I read a lot of his correspondence. I had to stop after a while, because the archive can overwhelm one with detail. For example, I might have found a way to include Oliver Hardy’s tattoo, which I didn’t know about until I read the letter just now. But of all the Laurel letters that I have read, one in particular stands out. It was written to his second wife, Ruth, on 1 July 1937, as their relationship was disintegrating. It is so striking that I quote it here in its entirety:

Dear Ruth,

When Lois divorced me it unbalanced me mentally & I made up my mind that I couldn’t be happy any more. I met & married you in that frame of mind, & the longer it went on, the stronger it became. That’s why I left you with the insane idea Lois would take me back.

After I left you, I found out definitely that she wouldn’t. I then realised the terrible mistake I had made & was too proud to admit it, so then I tried to find a new interest to forget it all, & truthfully Ruth I never have. I have drank just to keep up my spirits & I know I can’t last doing that, & am straining every effort to get back to normal.

You’ve been swell through it all, except the few rash things you did. I don’t blame you for not being in love with me, but my state of mind overrules my true feeling. If I had to do it over again things would be a lot different, but not in this town or this business. My marital happiness means more than all the millions.

Why has this letter stayed with me? I think it’s because of the penultimate sentence: “If I had to do it over again things would be a lot different, but not in this town or this business.” Hollywood brought Laurel a career, acclaim and a personal and professional relationship by which he came to be defined, but all at a price.

Stan Laurel was a complicated man, and complicated men lead complicated lives. In Laurel’s case, many of these complexities related to women. His comic performances and lack of vanity on screen often disguise his handsomeness, and monochrome film cannot communicate the blueness of his eyes. Women fell for him, and fell hard. He amassed more ex-wives than is wise for any gentleman (three in total, one of whom, Ruth, he married twice), to which number may be added a common-law wife and at least one long-standing mistress.

Had Laurel remained in Britain, serving an apprenticeship to his father before assuming control of one of the family’s theatres, women might not have been such a temptation for him. At the very least, he would have been constrained by a combination of finances and anonymity. Instead, he left for the United States and changed his name. In 1917, he met Mae Dahlberg, an older Australian actress who claimed to be a widow, despite the existence elsewhere of a husband who was very much alive and well. Laurel and Mae worked the vaudeville circuit together and shared a bed, but Mae – who lacked the talent to match her ambition – was eventually paid to disappear, as much to facilitate Laurel’s wedding to a younger, prettier actress named Lois Neilson as to ensure the furtherance of his career.

Yet it wasn’t long into this marriage before Laurel commenced an affair with the French actress Alyce Ardell, one that would persist for two decades, spanning three further nuptials. Ardell was Laurel’s pressure valve: as marriage after marriage fell apart, he would turn to her, although he seemed unwilling, or unable, to connect this adultery with the disintegration of his formal relationships.

The end of his first marriage was not the result of Laurel’s unfaithfulness alone. His second child with Lois, whom they named Stanley, died in May 1930 after just nine days of life. For a relationship that was already in trouble, it may have represented the final, fatal blow. Nevertheless, he always regretted leaving Lois. “I don’t think I could ever love again like I loved Lois,” he writes to Ruth on Christmas Eve in 1936. “I tried to get over it, but I can’t. I’m unhappy even after all you’ve done to try to make me happy, so why chase rainbows?”

But chasing rainbows was Stan Laurel’s default mode. He admitted advertising his intention to marry Ruth in the hope that Lois might take him back. Even after he and Ruth wed for the first time, he wrote letters to Lois seeking reconciliation. It set a pattern for the years to come: dissatisfaction in marriage; a retreat to Alyce Ardell’s bed; divorce; another marriage, including a year-long involvement with a notorious Russian gold-digger named Vera Ivanova Shuvalova, known by her stage name of Illiana (in the course of which Laurel, under the influence of alcohol, dug a hole in his garden with the stated intention of burying her in it), and finally contentment with another Russian, a widow named Ida Kitaeva Raphael, that lasted until his death.

These marital tribulations unfolded in full view of the media, with humiliating details laid bare. In 1946, he was forced to reveal in open court that alimony and child support payments left him with just $200 at the end of every month, and he had only $2,000 left in his bank account. In the course of divorce proceedings involving Illiana, his two previous wives were also briefly in attendance, leading the press to dub Lois, Ruth and Illiana “triple-threat husband hazards”. It might have been more accurate to term Stan Laurel a wife hazard, but despite all his failings, Lois and Ruth, at least, remained hugely fond of him.

“When he has something, he doesn’t want it,” Ruth told a Californian court in 1946, during their second set of divorce proceedings, “but when he hasn’t got it, he wants it. But he’s still a swell fellow.”

Laurel’s weakness was women, but he was not promiscuous. I think it is possible that he was always looking for a structure to his existence and believed that contentment in marriage might provide it, but his comedy was predicated on a conviction that all things tended towards chaos, in art as in life.

Thanks to the perfect complement of Oliver Hardy, Laurel was perhaps the greatest screen comedian of his generation – greater even than Chaplin, I would argue, because there is a purity to Laurel’s work that is lacking in Chaplin’s. Chaplin – to whom Laurel once acted as an understudy and with whom he stayed in contact over the years – wanted to be recognised as a great artist and succeeded, but at the cost of becoming less and less funny, of leaving the comedian behind. Stan Laurel sought only to make his audience laugh, and out of that ambition he created his art.

“he: A Novel” by John Connolly is published by Hodder & Stoughton on 24 August

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