Britain should “hang its head in shame” over Syrian refugee crisis

Amnesty International condemns Europe's failure to resettle Syrian refugees.

As winter settles in, the dangers faced by Syrian refugees will increase – many lack adequate shelter, fuel, food or medicine. Around 2.3 million people have fled the civil war in Syria, most to neighbouring countries. According to UNHCR, 838,000 have fled to Lebanon, 567,000 to Jordan and 540,000 to Turkey – the three countries bearing the greatest refugee burden. These countries are not only struggling with the economic cost of the refugee crisis, but face serious political repercussions too, with fears that sectarian violence is spilling beyond Syria’s borders.

According to an Amnesty International has said that European leaders should “hang their head in shame” at their failure to take in Syrian refugees. Only ten European countries have agreed to host and resettle Syrian refugees – and the UK is not one of them. The most generous is Germany, which has agreed to take 20,000 and the remaining countries are taking on just 2,340 refugees together.

In the UK, some have responded by pointing out that its pledge of £500m of humanitarian aid to Syria is more than all other EU countries combined. According to Oxfam in September, the UK has given 154 per cent of its fair share to Syria (relative to its GDP) so this is something to be proud of. In contrast, France – which has consistently taken a more hawkish stance on Syria – has only given 45 per cent of its fair share.

Britain’s commitment to humanitarian aid is a positive, but this shouldn’t be used as an excuse to close the door to refugees. Perhaps the government, wary of anti-immigration rhetoric, is afraid of how the public might react to several thousand Syrians being resettled here. But the reality is the UK can, and should, absorb and resettle several thousand refugees.

Meanwhile, thousands are dying attempting to make it into Europe anyway. In October 650 migrants and refugees died trying to enter Europe by sea from North Africa. Greece has been pushing Syrian migrants back to sea, and Bulgaria has detained around 5,000. It’s not enough to simply hand over cash to a crisis we pretend is far away, while the victims of war are dying on our doorsteps.

Syrian refugees take part in a demonstration at the Zaatari refugee camp, near the border with Syria. Photo: Getty.

Sophie McBain is a freelance writer based in Cairo. She was previously an assistant editor at the New Statesman.

Ralph Orlowski / Getty
Show Hide image

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

0800 7318496