A January rally for Charlie Hebdo in Trafalgar Square. Photo: Rob Stothard/Getty Images
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The horrors in Paris, flowers from Boris, and the spirit of Charlie Hebdo in London

The French ambassador to the UK shares how London's response to Charlie Hebdo gave hope after the attacks.

The new year began with unthinkable horror. On Wednesday 7 January, two brothers armed with Kalashnikovs stormed into the Paris offices of the satirical magazine Charlie Hebdo and killed 12 people. In the two nightmare days that followed, a policewoman was shot dead at work and four hostages were killed at a kosher supermarket. France was in shock. France mourned its dead.

These attacks were cowardly, barbaric acts of violence. They have been condemned around the world. They have also sparked uplifting displays of solidarity between people of different faiths and nationalities, culminating on Sunday 11 January when four million people marched together on the streets of France. Difficulties lie ahead, but the unity we’ve seen in the wake of the Paris attacks is our most powerful weapon in dealing with them.

 

Fourth estate solidarity

I was on a tour of Agence France-Presse’s London office when the news of the first attacks broke. Being with journalists as their colleagues were being murdered for the same principles that they defend in their everyday work – freedom of expression, dialogue and debate – was an incredibly moving experience. That same afternoon, I met with Gérard Biard, the editor-in-chief of Charlie Hebdo, who happened to be in London on holiday with his wife. He echoed everyone’s feelings when he expressed his horror and incomprehension at the nature of this attack against a newspaper.

 

Security in equality

The fight against terrorism has long been a shared priority for France and the UK – we face many of the same threats and security challenges, and a lot of the measures we are taking are closely co-ordinated. While Theresa May travelled to Paris after the attacks to attend a meeting of interior ministers, here in London I met with Sir Bernard Hogan-Howe, the Met Police commissioner, to discuss ways to make co-operation on security and policing even tighter. Since the attacks France has deployed 5,000 police officers and 10,000 troops around the country to protect people and sensitive sites – an unprecedented number on national soil. We have also reinforced internet surveillance; and, within the EU, we’ll be talking to major internet companies about making sure we can act quickly to detect content inciting hatred and terror online. While the security measures were urgent, they are just one part of our response. We also need to ensure equality of opportunity and fight discrimination so that everyone feels involved in society. That’s one of the aims of French laïcité: to try to ensure everyone feels that they are equal as French citizens, irrespective of their beliefs or origins.

 

Expressions of fraternity

Among the positive things to be remembered from the days following the attacks, one is the overwhelming affirmation of the UK’s support in times of need. David Cameron and the leader of the opposition took to the streets of Paris for the “Unity March”; on behalf of the royal family, Prince Harry came to the embassy to share his condolences; so did Nick Clegg. And when Boris Johnson declared “Nous sommes Charlie” on a card tucked into the beautiful bouquet of flowers he gave us, he spoke for what felt like all the people of London. The day of the great march in Paris, Trafalgar Square turned blue, white and red beneath the gaze of Admiral Nelson. In this bicentenary year of the Battle of Waterloo, this was a remarkable tribute to 200 years of friendship and peace between our countries. I’m sure the sweet irony of it wouldn’t have been lost on our friends killed at Charlie Hebdo. I think the survivors’ edition of the magazine captured the British – and French – spirit in the face of the attacks: “Keep calm and Charlie on”.

 

Paris in London

The French community in London, like many Britons, came out in force in the wake of the attacks, sending messages of sympathy, attending night-time vigils, and forming great queues outside the French bookshops of South Kensington to get hold of copies of Charlie Hebdo. The exact size of the French community here is a question that seems to provoke no end of debate. It’s tricky to know for certain the precise numbers but we estimate there could be around 300,000 French nationals living in the UK as a whole, with two-thirds of them living in the Greater London area. So I think it’s fair to say that the French love London; and it’s great to see how French expats are exporting French influence over here and increasing the cultural and commercial links between our countries.

 

Older conflicts

I’m sure that the shock and pain of the Paris attacks will be felt for a long time to come. I hope the spirit of unity we’ve seen – in the UK, in France and all over the world – will also endure. This year will be one of remembrance and sombre reflection in many respects. This April is the 100th anniversary of the Gallipoli campaign, which caused so many British, French and Anzac casualties. And, as the commemorations for the First World War continue, 2015 also marks 70 years since the end of the Second World War. Throughout the year, the French embassy will continue awarding the Légion d’honneur to British veterans who risked their lives on D-Day.

 

Beyond terrorism

Amid the sadness, 2015 is also a year for hope. One of our biggest focuses will be achieving a global agreement on climate change at the UN climate conference taking place in Paris at the end of the year. Last November’s agreement between China and the US on carbon cuts was an encouraging step on the road to Paris 2015. This is a major moment for our planet and for the whole of humanity, and it’s an opportunity we mustn’t waste. Let’s make sure this year ends on a more positive note than it began!

Sylvie Bermann is the French ambassador to the UK

This article first appeared in the 23 January 2015 issue of the New Statesman, Christianity in the Middle East

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We're racing towards another private debt crisis - so why did no one see it coming?

The Office for Budget Responsibility failed to foresee the rise in household debt. 

This is a call for a public inquiry on the current situation regarding private debt.

For almost a decade now, since 2007, we have been living a lie. And that lie is preparing to wreak havoc on our economy. If we do not create some kind of impartial forum to discuss what is actually happening, the results might well prove disastrous. 

The lie I am referring to is the idea that the financial crisis of 2008, and subsequent “Great Recession,” were caused by profligate government spending and subsequent public debt. The exact opposite is in fact the case. The crash happened because of dangerously high levels of private debt (a mortgage crisis specifically). And - this is the part we are not supposed to talk about—there is an inverse relation between public and private debt levels.

If the public sector reduces its debt, overall private sector debt goes up. That's what happened in the years leading up to 2008. Now austerity is making it happening again. And if we don't do something about it, the results will, inevitably, be another catastrophe.

The winners and losers of debt

These graphs show the relationship between public and private debt. They are both forecasts from the Office for Budget Responsibility, produced in 2015 and 2017. 

This is what the OBR was projecting what would happen around now back in 2015:

This year the OBR completely changed its forecast. This is how it now projects things are likely to turn out:

First, notice how both diagrams are symmetrical. What happens on top (that part of the economy that is in surplus) precisely mirrors what happens in the bottom (that part of the economy that is in deficit). This is called an “accounting identity.”

As in any ledger sheet, credits and debits have to match. The easiest way to understand this is to imagine there are just two actors, government, and the private sector. If the government borrows £100, and spends it, then the government has a debt of £100. But by spending, it has injected £100 more pounds into the private economy. In other words, -£100 for the government, +£100 for everyone else in the diagram. 

Similarly, if the government taxes someone for £100 , then the government is £100 richer but there’s £100 subtracted from the private economy (+£100 for government, -£100 for everybody else on the diagram).

So what implications does this kind of bookkeeping have for the overall economy? It means that if the government goes into surplus, then everyone else has to go into debt.

We tend to think of money as if it is a bunch of poker chips already lying around, but that’s not how it really works. Money has to be created. And money is created when banks make loans. Either the government borrows money and injects it into the economy, or private citizens borrow money from banks. Those banks don’t take the money from people’s savings or anywhere else, they just make it up. Anyone can write an IOU. But only banks are allowed to issue IOUs that the government will accept in payment for taxes. (In other words, there actually is a magic money tree. But only banks are allowed to use it.)

There are other factors. The UK has a huge trade deficit (blue), and that means the government (yellow) also has to run a deficit (print money, or more accurately, get banks to do it) to inject into the economy to pay for all those Chinese trainers, American iPads, and German cars. The total amount of money can also fluctuate. But the real point here is, the less the government is in debt, the more everyone else must be. Austerity measures will necessarily lead to rising levels of private debt. And this is exactly what has happened.

Now, if this seems to have very little to do with the way politicians talk about such matters, there's a simple reason: most politicians don’t actually know any of this. A recent survey showed 90 per cent of MPs don't even understand where money comes from (they think it's issued by the Royal Mint). In reality, debt is money. If no one owed anyone anything at all there would be no money and the economy would grind to a halt.

But of course debt has to be owed to someone. These charts show who owes what to whom.

The crisis in private debt

Bearing all this in mind, let's look at those diagrams again - keeping our eye particularly on the dark blue that represents household debt. In the first, 2015 version, the OBR duly noted that there was a substantial build-up of household debt in the years leading up to the crash of 2008. This is significant because it was the first time in British history that total household debts were higher than total household savings, and therefore the household sector itself was in deficit territory. (Corporations, at the same time, were raking in enormous profits.) But it also predicted this wouldn't happen again.

True, the OBR observed, austerity and the reduction of government deficits meant private debt levels would have to go up. However, the OBR economists insisted this wouldn't be a problem because the burden would fall not on households but on corporations. Business-friendly Tory policies would, they insisted, inspire a boom in corporate expansion, which would mean frenzied corporate borrowing (that huge red bulge below the line in the first diagram, which was supposed to eventually replace government deficits entirely). Ordinary households would have little or nothing to worry about.

This was total fantasy. No such frenzied boom took place.

In the second diagram, two years later, the OBR is forced to acknowledge this. Corporations are just raking in the profits and sitting on them. The household sector, on the other hand, is a rolling catastrophe. Austerity has meant falling wages, less government spending on social services (or anything else), and higher de facto taxes. This puts the squeeze on household budgets and people are forced to borrow. As a result, not only are households in overall deficit for the second time in British history, the situation is actually worse than it was in the years leading up to 2008.

And remember: it was a mortgage crisis that set off the 2008 crash, which almost destroyed the world economy and plunged millions into penury. Not a crisis in public debt. A crisis in private debt.

An inquiry

In 2015, around the time the original OBR predictions came out, I wrote an essay in the Guardian predicting that austerity and budget-balancing would create a disastrous crisis in private debt. Now it's so clearly, unmistakably, happening that even the OBR cannot deny it.

I believe the time has come for there be a public investigation - a formal public inquiry, in fact - into how this could be allowed to happen. After the 2008 crash, at least the economists in Treasury and the Bank of England could plausibly claim they hadn't completely understood the relation between private debt and financial instability. Now they simply have no excuse.

What on earth is an institution called the “Office for Budget Responsibility” credulously imagining corporate borrowing binges in order to suggest the government will balance the budget to no ill effects? How responsible is that? Even the second chart is extremely odd. Up to 2017, the top and bottom of the diagram are exact mirrors of one another, as they ought to be. However, in the projected future after 2017, the section below the line is much smaller than the section above, apparently seriously understating the amount both of future government, and future private, debt. In other words, the numbers don't add up.

The OBR told the New Statesman ​that it was not aware of any errors in its 2015 forecast for corporate sector net lending, and that the forecast was based on the available data. It said the forecast for business investment has been revised down because of the uncertainty created by Brexit. 

Still, if the “Office of Budget Responsibility” was true to its name, it should be sounding off the alarm bells right about now. So far all we've got is one mention of private debt and a mild warning about the rise of personal debt from the Bank of England, which did not however connect the problem to austerity, and one fairly strong statement from a maverick columnist in the Daily Mail. Otherwise, silence. 

The only plausible explanation is that institutions like the Treasury, OBR, and to a degree as well the Bank of England can't, by definition, warn against the dangers of austerity, however alarming the situation, because they have been set up the way they have in order to justify austerity. It's important to emphasise that most professional economists have never supported Conservative policies in this regard. The policy was adopted because it was convenient to politicians; institutions were set up in order to support it; economists were hired in order to come up with arguments for austerity, rather than to judge whether it would be a good idea. At present, this situation has led us to the brink of disaster.

The last time there was a financial crash, the Queen famously asked: why was no one able to foresee this? We now have the tools. Perhaps the most important task for a public inquiry will be to finally ask: what is the real purpose of the institutions that are supposed to foresee such matters, to what degree have they been politicised, and what would it take to turn them back into institutions that can at least inform us if we're staring into the lights of an oncoming train?