Bolivian President grounded in Austria over Snowden fears, sparking fury in Latin America

Evo Morales' plane was refused leave to overfly four Western European nations in the early hours of this morning.

The Bolivian President, Evo Morales, was forced to redirect his plane home from Russia last night due to apparent suspicion it was carrying Edward Snowden, the NSA whistleblower. Morales had to make an unscheduled landing in Vienna, which his staff blamed on France and Portugal, who, the staff say, withdrew their permission for the plane to pass through their airspace.

Both Austrian and Bolivian officials say that Snowden was not, in fact, on the plane. The Bolivian foreign minister, David Choquehuanca, told reporters that "We don't know who invented this lie. We want to denounce to the international community this injustice with the plane of President Evo Morales."

The suspicion seems to have been based on comments Morales made on Monday, while attending an energy conference in Moscow. Asked on Russia Today if he would give asylum to Snowden, the New York Times reports that he responded, "Yes, why not? Of course, Bolivia is ready to take in people who denounce — I don’t know if this is espionage or monitoring. We are here." He added that the country had not received a request for asylum.

Based on those fears, it appears that France and Portugal – as well as Spain and Italy, according to Bolivian defence minister Ruben Saavedra Soto – decided they were better off not getting involved, and refused the plane leave to fly through their airspace.

The fallout from the decision has been major. Morales was "kidnapped by imperialism", in the words of Bolivia's Vice President Alvaro Garcia; Argentine President Cristina Kirchner is tweeting regularly about the incident, saying "No se si ponerme a reír o llorar" (I don't know whether to laugh or to cry); Kirchner also says she has spoken to Uruguay's president, José Mujica, who is "indignado" (indignant) at the situation; and Rafael Correa, President of Ecuador, writes "Decisive hours for UNASUR! Either we graduated from the colonies, or we claim our independence, sovereignty and dignity. We are all Bolivia!"

 

 

The most important question remains unanswered, though: what was the extent of US involvement in the affront? Saavedra, Bolivia's defence minister, thinks so, saying "This is a hostile act by the United States State Department which has used various European governments". If it turns out that the American government did explicitly tell the European nations to ground Morales, that is a wound which will not heal quickly.

Morales with Putin yesterday. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Labour's investment bank plan could help fix our damaging financial system

The UK should learn from the success of a similar project in Germany.

Labour’s election manifesto has proved controversial, with the Tories and the right-wing media claiming it would take us back to the 1970s. But it contains at least one excellent idea which is certainly not out-dated and which would in fact help to address a key problem in our post-financial-crisis world.

Even setting aside the damage wrought by the 2008 crash, it’s clear the UK’s financial sector is not serving the real economy. The New Economics Foundation recently revealed that fewer than 10% of the total stock of UK bank loans are to non-financial and non-real estate businesses. The majority of their lending goes to other financial sector firms, insurance and pension funds, consumer finance, and commercial real estate.

Labour’s proposed UK Investment Bank would be a welcome antidote to a financial system that is too often damaging or simply useless. There are many successful examples of public development banks in the world’s fastest-growing economies, such as China and Korea. However, the UK can look closer to home for a suitable model: the KfW in Germany (not exactly a country known for ‘disastrous socialist policies’). With assets of over 500bn, the KfW is the world’s largest state-owned development bank when its size is measured as a percentage of GDP, and it is an institution from which the UK can draw much-needed lessons if it wishes to create a financial system more beneficial to the real economy.

Where does the money come from? Although KfW’s initial paid-up capital stems purely from public sources, it currently funds itself mainly through borrowing cheaply on the international capital markets with a federal government guarantee,  AA+ rating, and safe haven status for its public securities. With its own high ratings, the UK could easily follow this model, allowing its bank to borrow very cheaply. These activities would not add to the long-run public debt either: by definition an investment bank would invest in projects that would stimulate growth.

Aside from the obviously countercyclical role KfW played during the financial crisis, ramping up total business volume by over 40 per cent between 2007 and 2011 while UK banks became risk averse and caused a credit crunch, it also plays an important part in financing key sectors of the real economy that would otherwise have trouble accessing funds. This includes investment in research and innovation, and special programs for SMEs. Thanks to KfW, as well as an extensive network of regional and savings banks, fewer German SMEs report access to finance as a major problem than in comparator Euro area countries.

The Conservatives have talked a great deal about the need to rebalance the UK economy towards manufacturing. However, a real industrial policy needs more than just empty rhetoric: it needs finance. The KfW has historically played an important role in promoting German manufacturing, both at home and abroad, and to this day continues to provide finance to encourage the export of high-value-added German products

KfW works by on-lending most of its funds through the private banking system. This means that far from being the equivalent of a nationalisation, a public development bank can coexist without competing with the rest of the financial system. Like the UK, Germany has its share of large investment banks, some of which have caused massive instabilities. It is important to note that the establishment of a public bank would not have a negative effect on existing private banks, because in the short term, the UK will remain heavily dependent on financial services.

The main problem with Labour’s proposal is therefore not that too much of the financial sector will be publicly owned, but too little. Its proposed lending volume of £250bn over 10 years is small compared to the KfW’s total financing commitments of  750 billion over the past 10 years. Although the proposal is better than nothing, in order to be effective a public development bank will need to have sufficient scale.

Finally, although Brexit might make it marginally easier to establish the UK Investment Bank, because the country would no longer be constrained by EU State Aid Rules or the Maastricht criteria, it is worth remembering that KfW’s sizeable range of activities is perfectly legal under current EU rules.

So Europe cannot be blamed for holding back UK financial sector reform to date - the problem is simply a lack of political will in the current government. And with even key architects of 1980s financial liberalisation, such as the IMF and the economist Jeffrey Sachs, rethinking the role of the financial sector, isn’t it time Britain did the same?

Dr Natalya Naqvi is a research fellow at University College and the Blavatnik School of Government, University of Oxford, where she focuses on the role of the state and the financial sector in economic development

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