There is no doubting the seriousness of the News International scandal and what it means for key pillars of the British establishment. It has dominated the news for ten days now and that will continue – there’s a lot more to come out still.
But there is some pretty significant news happening elsewhere, of far greater potential consequence for our well-being.
We still await a dénouement in the Greek bail-out/default debacle. Whatever results, it won’t be pretty for the Greeks or for the rest of us. At the moment, everyone is playing chicken and waiting to see who blinks first (well, that’s my layperson assessment of it).
They have good reason to – the extent to which other governments and more particularly, the banks wot we just rescued are up to their necks in toxic Greek hock is scary. Default means they lose billions and we taxpayers will be expected to fork out to save them from collapse again. Bail-out means handing over more money to keep the Greek economy afloat – money we in the UK certainly don’t have, nor do any other European countries. And also prodding the big banks to lend even more, creating increased risk of one of them going under or approaching governments cap in hand.
The stress tests carried out by the European Banking Authority (EBA) show just how precarious banks’ abilities are to withstand another financial crisis. One went in the huff and refused to complete the tests, eight were found wanting and a further sixteen are in the danger zone. That’s well over a quarter of European banks who would toil to make it through another crash without needing a bail-out or collapsing. What are the risks? Well, given that the eight failing banks were Spanish, Greek or Austrian (?), pretty high actually. Seven more Spanish ones and two big Portuguese ones feature in the danger zone.
Mess doesn’t begin to cover it. I can’t help visualising it all as a delicately balanced house of cards. At the moment, we are trying to add another card or two to the top, avoiding the house toppling over in the process. However, one unexpected puff of wind could bring the whole lot crashing down.
Still if it’s bad over here, you might want to cover your eyes when you glance across the pond. For there is not a lot of blinking going on in the hardball game being played by Republicans and Democrats over their economic situation. We know it’s reached desperate straits when Paul Mason from BBC Newsnight is shipping over there to report on the end game. His tweets and blog posts will be well worth following in the coming days.
Effectively, there is a political stand-off over raising the ceiling on the USA’s eye-watering levels of debt. If the federal government cannot borrow more money by 2 August then its coffers run dry and it cannot pay its bills. President Obama warned starkly that social security payments and salaries would not be paid on 3 August, but fresh global fiscal turmoil and another recession could also result if the ceiling is not raised beyond its current £8.8 trillion. No wonder the markets are jitsy.
The Republicans in Congress are refusing to raise the ceiling without an accompanying scything of federal expenditure. They also refuse to countenance tax raises for the seriously wealthy, something the Democrats want as part of the package. The rival camps have been here before over the borrowing limit but never have the stakes seemed higher. An impasse has been reached with Obama calls on the Republicans to produce a plan and the Republicans rejoinder that the White House doesn’t have much of a plan either. That’s an awful lot of bluff and bluster at this late stage in the game.
So in two of the world’s biggest economies, we appear to be in soapy bubble. Whatever compromises are reached regarding bail-outs and defaults in the Eurozone and in respect of the US’s debt ceiling, that is all they are: the house of cards is saved for another day, wobbling away still trying to avoid gusts of wind.
Back in 2008, when everything collapsed and the world was hit by recession, some of us dared to dream and hope that a new financial order would emerge. That has proven to be forlorn. For the banks, it has been business as usual, change in terms of regulation and stripping out retail from investment has not materialised. Plans have been drawn up, with the banks snapping at the heels of the politicians all the way, but little has been enacted.
The cost of saving our banks has been high – economies that borrowed their way to success and were also required to put their share in the bail-out kitty are now effectively bankrupt. The reason everyone fears a Greek collapse is the dreaded domino effect. And if the USA fails to sort its counting house out, the consequences don’t bear thinking about.
Of course, hidden beneath the high political and economic stakes are the stories of human misery – long term unemployment, sharp declines in wages, rocketing prices, homelessness, families in poverty, savings wiped out, credit called in, mortgages defaulted. It’s relative, of course, compared to the famine and tragedy unfolding in East Africa, but it is no less painful for those bearing the brunt of the storm.
The lack of leadership and ideas for a new economic order is connected to the very serious soap opera being played out in the UK right now. Endemic graft, corruption, atrophy and self-serving behaviour at the top of key institutional pillars leaves little time or energy for anything else. If we are to turn our house of cards into one of bricks, we must embrace resolve, optimism, doggedness, fearlessness and hope. Never has the old adage, keep calm and carry on, seemed so apt.