Bill Emmott - International Author & Adviser


Our leaders are following the Micawber Plan
The Times - September 10th 2012

How nice it would be to bounce back cheerfully in after one’s summer break, predicting that the economic crisis was over, that recovery was on the way, that the European Central Bank had saved us all from a euro collapse, that once the American election is over in November the fog will clear there, and that David Cameron’s brilliant formula of a new extension in every garden will begin a fresh era of prosperity for all us home-is-our-castle Brits. There’s only one snag. Readers would call in the men in white coats to take me away, thinking I had gone mad. They would be right. Sadly, there is nothing in the early Autumn air, not even Britain’s better industrial production figures for July, to support such optimism. Things still look wobbly, messy and somewhat depressing. There is moreover, one thing to note: a striking sort of unity among western governments. None of them know what to do. All are following the great Micawber’s principle: hoping that something will turn up. That, after all, was the central message from the speeches at the Democratic National Convention in North Carolina by ex-President Bill Clinton and the hoping-to-be-re-elected President Barack Obama. The recovery is under way, said ex-President Clinton: it’s just that you aren’t feeling it yet, as indeed the disappointingly low job-creation numbers for August showed, a couple of days later. President Obama was terrific at lampooning his Republican opponents, for never seeing a problem to which the solution was not a tax cut, but feeble at laying out an agenda of his own. It was also the underlying message, at least the one received by businesses, from the British government’s supposed growth package. If the best they could come up with was a review of the planning rules, to tap previously unnoticed demand for new houses and residential extensions, and a review of transport infrastructure to report sometime in the far future, Messrs Cameron and Osborne clearly do not know what to do, except wait and hope. Admittedly, Mario Draghi, president of the European Central Bank, does have a plan and, in the cunning way of central bankers, he hopes that just by announcing he will be able to avoid actually having to implement it. By at last standing ready, if necessary, to buy unlimited amounts of Spanish and Italian government bonds so as to stop their borrowing costs going through the roof, he hopes that the market will decide never to make it necessary. He could be right, and this is a genuinely important development: the ECB has circumvented German objections to become what it previously said it shouldn’t be, namely a lender of last resort for the euro zone. And through that move it has begun, by stealth, the process of turning the euro from a currency governed by rules and national obligations towards one involving mutual responsibility for debt and increased central control. As Mr Draghi would agree, however, this is not a solution for the euro crisis, for that is not within his powers: it is a much stronger safety net that makes it less likely that the whole system will crash painfully down. It does nothing to deal with the currency’s three central problems: that as long as Greece is a member, the euro’s rules and credibility will be undermined; that while political union, or at least greater shared sovereignty, is necessary, national politics in the main euro countries are moving in the opposite direction; and that rules and economic policy geared only to austerity are bringing deepening recessions and further political alienation. It is on these problems that European governments do not have a plan. They are waiting and hoping that something will turn up: that the Dutch election on Wednesday will show the Netherlands to still be pro-euro and co-operative about bail-outs; that later this month Greece will be shown miraculously to be meeting its fiscal and reform commitments; and that some time later this year euro zone economies will show signs of revival, calming the feverish politics of Italy, Spain and others. Well, on second thoughts this is slightly unfair. European governments do have plans. It is just that they disagree about which to choose: Germany wants to stick to fiscal austerity while avoiding mutualisation of debt until the dream of political union has come true; France, supported by Italy and Spain, want mutualisation first, hoping either that political union can be avoided or that their electorates will come eventually to accept it in economically cheerier times; and other northern Europeans, notably the Finns, just don’t want to cough up any more money for bail-outs. Nothing new there. And it is true that we often expect too much of governments, and of the fabled “leadership” that we—especially the unroyal we of the media—are constantly calling for. The idea in our minds is that governments are like ships’ captains, controlling the engines and tiller, or perhaps like Neil Armstrong, able boldly to seize the controls and land in exciting new places. The reality is utterly different, with guesswork, crude tools and misleading instrument panels. Sometimes, doing relatively little and hoping something will turn up makes more sense than being hyperactive. The trouble is that this doesn’t feel like that sort of time. And governments, especially in Europe, are not just doing nothing: they are making things worse, by sticking obsessively to fiscal austerity at a time when the central economic problem is a shortage of demand, and relying excessively on monetary policy at a time when corporate caution and stressed financial systems have made it less and less effective. Like our governments, we can and probably should hope that recovery will come of its own accord. But this Autumn, the main thing we are going to have to do is to watch for signals of whether problems are being resolved or getting worse. Those include whether the euro zone finally makes up its mind what to do about Greece; whether politics in big debtors such as Italy with imminent elections turn dramatically against the euro; whether countries with ultra-cheap government borrowing costs, including Britain and Germany, show signs of untightening their fiscal belts in order to support demand, or at least stop it falling further; and whether the US election in November produces not just the less important and unlikely outcome of a decisive President but something more vital, namely a Congress capable of taking decisions. Fingers crossed.


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