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Leader: It is time for Chancellor Merkel to intervene to save Europe

For more than two years, Europe’s leaders have delayed and prevaricated as the survival of the single currency has grown ever less certain. “If the euro fails, then Europe fails,” the German chancellor, Angela Merkel, has said, implying an unconditional commitment to the single currency. Yet her narrow focus on austerity has left it on the brink of collapse. The Greek people, now enduring a fifth year of recession, may have handed a narrow victory to the pro-bailout New Democracy in their country’s second election in two months but relief among EU leaders was dispelled when Spanish ten-year bond yields climbed above 7 per cent, the level that forced Greece, Portugal and Ireland to seek bailouts.

The prospect that Spain, the eurozone’s fourth-largest economy, and Italy, its third-largest, could default on their debts is the greatest threat to the euro’s survival. The EU has the firepower to keep Greece in the single currency, in the form of the €750bn European bailout fund, but it would struggle to assemble a rescue fund large enough to save Italy and Spain and the single currency itself.

It is this realisation that has finally pushed Mrs Merkel to consider the hitherto unthinkable. Under pressure from Barack Obama, who fears that a eurozone crash could disrupt the fragile US recovery, and the French president, François Hollande, who has won the strongest possible mandate to promote growth rather than austerity, the German chancellor has reportedly agreed to allow the eurozone’s bailout fund to buy up the bonds of EU member states in order to reduce borrowing costs. If so, and we await the full details, the move is welcome. To paraphrase Winston Churchill on the US, Germany has done the right thing after exhausting all the available alternatives. There is no guarantee that this strategy will succeed; bond traders may continue their assault on Spain in the expectation that the EU will blink first. But, for the first time since the crisis began, Germany has recognised the need for extraordinary measures.

A debt purchase programme would be a step towards the creation of a eurobond market, through which Germany would underwrite the debt of the single currency’s poorer members. It is incumbent on Germany, which, as an ex­porting nation, benefited more than any other from the creation of the euro, to throw its full economic weight behind the currency. In addition, it must tolerate higher-than-average inflation as the price for allowing the peripheral countries to rebalance their economies and increase their competitiveness.

From its vantage point outside the eurozone, the British government has delivered a series of increasingly shrill lectures to EU leaders. George Osborne said that the UK’s “recovery” was being “killed off” by the crisis. The truth is that the Chancellor accomplished that all by himself. It was his austerity rhetoric (he compared the UK economy to that of Greece) and his measures, most notably the 2.5-point rise in VAT to 20 per cent, and his absurd claim that Britain was on “the brink of bankruptcy”, that destroyed confidence and choked off growth. With the exception of Italy, Britain is the only G20 country to have suffered a double-dip recession.

In response, Mr Osborne, a “fiscal conservative but a monetary activist”, appears to have subcontracted his growth policy to the Bank of England. The latest policy wheeze from Threadneedle Street – an £80bn “funding-for-lending scheme” – will do little to revive the economy at a time when the creditworthy, for fear of worse to come, are unwilling to borrow and those who are willing to borrow are uncreditworthy. The UK’s fundamental problem, a collapse in aggregate demand, remains unaddressed. As Mr Osborne is so fond of boasting of the UK’s historically low bond yields (though they owe more to the Bank’s quantitative easing programme than to his deficit reduction programme), the least he could do is take advantage of them. He should increase borrowing to fund higher infrastructure spending (the most effective stimulus, according to the Office for Budget Responsibility) and tax cuts.

The one European leader willing to put the case for stimulus over austerity is Mr Hollande, now buttressed by the first Socialist parliamentary majority since 1998. He has called for a €120bn “compact for growth and jobs” to be agreed at a summit in Brussels later this month and implemented before the end of the year. His plan deserves the support of all EU leaders. While the collapse of the euro may be averted, the danger of enduring stagnation remains. If Europe’s prosperity is not to be lost, there will be no alternative to stimulating growth. It is time Mrs Merkel acted accordingly.

This article first appeared in the 25 June 2012 issue of the New Statesman, Europe’s most dangerous leader

David Young
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The Tories are the zombie party: with an ageing, falling membership, still they stagger on to victory

One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.”

All football clubs have “ultras” – and, increasingly, political parties do, too: although, in the case of political parties, their loudest and angriest supporters are mostly found on the internet. The SNP got there first: in the early days of email, journalists at the Scotsman used to receive bilious missives complaining about its coverage – or, on occasion, lack of coverage – of what the Scottish National Party was up to. The rest soon followed, with Ukip, the Labour Party and even the crushed Liberal Democrats now boasting a furious electronic horde.

The exception is the Conservative Party. Britain’s table-topping team might have its first majority in 18 years and is widely expected in Westminster to remain in power for another decade. But it doesn’t have any fans. The party’s conference in Manchester, like Labour’s in Brighton, will be full to bursting. But where the Labour shindig is chock-full of members, trade unionists and hangers-on from the charitable sector, the Conservative gathering is a more corporate affair: at the fringes I attended last year, lobbyists outnumbered members by four to one. At one, the journalist Peter Oborne demanded to know how many people in the room were party members. It was standing room only – but just four people put their hands up.

During Grant Shapps’s stint at Conservative headquarters, serious attempts were made to revive membership. Shapps, a figure who is underrated because of his online blunders, and his co-chair Andrew Feldman were able to reverse some of the decline, but they were running just to stand still. Some of the biggest increases in membership came in urban centres where the Tories are not in contention to win a seat.

All this made the 2015 election win the triumph of a husk. A party with a membership in long-term and perhaps irreversible decline, which in many seats had no activists at all, delivered crushing defeats to its opponents across England and Wales.

Like José Mourinho’s sides, which, he once boasted, won “without the ball”, the Conservatives won without members. In Cumbria the party had no ground campaign and two paper candidates. But letters written by the Defence Secretary, Michael Fallon, were posted to every household where someone was employed making Trident submarines, warning that their jobs would be under threat under a Labour government. This helped the Tories come close to taking out both Labour MPs, John Woodcock in Barrow and Furness and Jamie Reed in Copeland. It was no small feat: Labour has held Barrow since 1992 and has won Copeland at every election it has fought.

The Tories have become the zombies of British politics: still moving though dead from the neck down. And not only moving, but thriving. One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.” His Conservative counterparts also believe that their rivals are out of power for at least a decade.

Yet there are more threats to the zombie Tories than commonly believed. The European referendum will cause endless trouble for their whips over the coming years. And for all there’s a spring in the Conservative step at the moment, the party has a majority of only 12 in the Commons. Parliamentary defeats could easily become commonplace. But now that Labour has elected Jeremy Corbyn – either a more consensual or a more chaotic leader than his predecessors, depending on your perspective – division within parties will become a feature, rather than a quirk, at Westminster. There will be “splits” aplenty on both sides of the House.

The bigger threat to Tory hegemony is the spending cuts to come, and the still vulnerable state of the British economy. In the last parliament, George Osborne’s cuts fell predominantly on the poorest and those working in the public sector. They were accompanied by an extravagant outlay to affluent retirees. As my colleague Helen Lewis wrote last week, over the next five years, cuts will fall on the sharp-elbowed middle classes, not just the vulnerable. Reductions in tax credits, so popular among voters in the abstract, may prove just as toxic as the poll tax and the abolition of the 10p bottom income-tax rate – both of which were popular until they were actually implemented.

Added to that, the British economy has what the economist Stephen King calls “the Titanic problem”: a surplus of icebergs, a deficit of lifeboats. Many of the levers used by Gordon Brown and Mervyn King in the last recession are not available to David Cameron and the chief of the Bank of England, Mark Carney: debt-funded fiscal stimulus is off the table because the public finances are already in the red. Interest rates are already at rock bottom.

Yet against that grim backdrop, the Conservatives retain the two trump cards that allowed them to win in May: questions about Labour’s economic competence, and the personal allure of David Cameron. The public is still convinced that the cuts are the result of “the mess” left by Labour, however unfair that charge may be. If a second crisis strikes, it could still be the Tories who feel the benefit, if they can convince voters that the poor state of the finances is still the result of New Labour excess rather than Cameroon failure.

As for Cameron, in 2015 it was his lead over Ed Miliband as Britons’ preferred prime minister that helped the Conservatives over the line. This time, it is his withdrawal from politics which could hand the Tories a victory even if the economy tanks or cuts become widely unpopular. He could absorb the hatred for the failures and the U-turns, and then hand over to a fresher face. Nicky Morgan or a Sajid Javid, say, could yet repeat John Major’s trick in 1992, breathing life into a seemingly doomed Conservative project. For Labour, the Tory zombie remains frustratingly lively. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.

This article first appeared in the 01 October 2015 issue of the New Statesman, The Tory tide