Osborne needs to launder a euro bailout through the IMF

The Chancellor cannot be seen to throw good pounds after bad euros, but nor can he stand by as the s

Given the difficulty the government had last time it tried to get an increase in Britain's contributions to the International Monetary Fund through parliament, George Osborne is unlikely to relish the prospect of repeating the exercise.

The fact that the Chancellor, speaking in Hong Kong, has urged G20 leaders to help boost IMF cash fire power is testimony to how severe the threat posed by continuing crisis in the eurozone is to the global economy. Britain would be prepared to chip in if other countries did too in order "to promote the economic stability from which we all benefit," Osborne said. This follows similar comments in a BBC interview yesterday and to Parliament last week indicating that the government is preparing the ground for a potentially unpopular IMF cash infusion.

The epicentre of instability is, of course, the eurozone, but Osborne cannot make an explicit commitment to bailout Britain's continental neighbours for fear of aggravating eurosceptic Tory backbenchers. Labour has also made it clear that it would oppose a direct transfer of UK money to a dedicated EU bailout fund - even one administered by the IMF. If enough Tories rebelled, a vote in parliament that ended up being framed in terms of whether or not good British pounds should be thrown after bad euros would be very tricky for the government. So any UK assistance to precarious eurozone economies has to be laundered through the general IMF kitty. (In practice that is hardly different from contributing to a specific euro bailout fund and eurosceptic rebels are unlikely to accept the distinction.)

Osborne recognises that economics, trade and geography make it a matter of some urgency for Britain that the IMF is adequately resourced to help potentially insolvent eurozone countries. But Conservative party politics - and the slightly poisoned atmosphere of Britain's diplomatic relationships within the EU - make it hard for him to take any kind of lead in getting the crisis resolved. It might, in any case, be too late.

The round of European sovereign credit downgrades last week had a knock-on effect of damaging the creditworthiness of the European Financial Stability Facility (EFSF) - the vehicle that is meant to administer bail out funds to keep the euro area functioning. There isn't anywhere near enough cash in the EFSF to cover the debts of all of the distressed euro member states, so the idea was always that the fund would trade on the aggregate creditworthiness of contributing countries to raise more capital. If the states funding the EFSF are themselves facing downgrade, the whole thing looks unsustainable.* (Germany is an exception, being a big economy with a solid credit rating, but Berlin is unwilling to evacuate its budget for the collective European cause.)

In other words, the fact that the euro rescue plan was really just a kind of pyramid scheme in which indebted countries promise to bail each other out by borrowing money is being exposed. That is another reason why the IMF will have to get more involved over the next few weeks.

Meanwhile, the draft eurozone-plus treaty, enforcing fiscal discipline and envisaging greater budget coordination between member states, is looking ever more irrelevant to the immediate crisis. It imposes rules to prevent a recurrence of the current situation, ignoring the facts that (a) such rules already existed and were ignored and (b) the current situation is upon us and cannot be cancelled out by wishing the rules had been obeyed more rigorously in the past. The horse has bolted and EU leaders are arguing about what kind of lock to put on the stable door.

*Update: The EFSF has been downgraded by Standard & Poors.

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

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Labour will win the London elections – they’ve just lost the spin war

The question is, does that matter? 

Cancel the champagne in Jeremy Corbyn’s office? A new YouGov poll for Queen Mary’s Mile End Institute shows Labour slipping back from the record-breaking heights of 53 per cent in the local elections in London… to the still record-breaking heights of 51 per cent.

There are two things to note first off: the first, of course, is that Labour would still be posting the best result of any party in the capital since 1971, and its best since these boroughs were founded. The second is that as the change is within the margin of error, it could all be noise.

My sense, from talking to the local parties throughout the capital is that there has been a slight fall in Labour support but it is not evenly spread. In Barnet, the party’s ongoing difficulties with antisemitism have turned what looked a certain victory into a knife-edge fight. In Wandsworth, stories in the Standard about the local Momentum group have successfully spooked some residents into fearing that a Labour victory in that borough would imperil the borough’s long history of ultra-low council tax, while the presence of a fairly well-organised campaign from new party Renew is splitting angry pro-Remain vote. But elsewhere, neither Labour nor Tory local activists are reporting any kind of fall.

However, it does show how comprehensively Labour have lost the spin war as far as what a “good” set of local election results would be next week: as I laid out in my analyses of what a good night for the major parties would be, Wandsworth and Westminster councils, both of which would stay blue if this poll is borne out, should not be seen as essential gains for Labour and should properly be seen as disastrous defeats for the Conservatives.

However, CCHQ have done a good job setting out a benchmark for what a good night looks like to the point where holding onto Bexley is probably going to be hailed as a success. Labour haven’t really entered the spin wars. As I noted on our podcast this week, that’s in part because, as one senior member of Team Corbyn noted, there is a belief that whatever you do in the run-up, the BBC will decide that there is merit in both sides’ presentation of how the night has gone, so why bother with the spin war beforehand? We may be about to find out whether that’s true. The bigger question for Labour is if the inability to shape the narrative in the face of a largely hostile press will be a problem come 2022. 

Stephen Bush is special correspondent at the New Statesman and the PSA's Journalist of the Year. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.