A chink of hope amid the abject failure of austerity

Columnist

Saturday 29 September 2012

If you believe in voodoo and the tooth fairy, you might also believe that markets are always right.

SOVEREIGNTY: With Catalans' appetite for autonomy whetted by the economic woes besetting Spain, an election in November will demand independence from Madrid. Picture: Albert Gea/Reuters

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Ian Bell

Their organic sentience better reflects economic reality, supposedly, than any mere breathing human being. So when can we expect the markets to pass judgment on the sovereign remedies of George Osborne, Chancellor of the Exchequer?

You probably remember how it was supposed to work. Allegedly, the markets said Mr Osborne was on the right track. His austerity was exactly what was required by UK plc. As a token of faith, those markets then rewarded the Chancellor and the rest of us with low interest rates. This was because – only because – Britain had adopted the policies needed.This week, the Office for National Statistics reported that in the second quarter of this year the United Kingdom showed a current account deficit of £20.8 billion. Here was another record. Once upon a time, the figures involved were known as the balance of payments. After a couple of years of Mr Osborne, there is no balance. The national accounts are a gaudy sea of red.If the markets operate as markets are supposed to operate, retribution should follow. Come the Chancellor's autumn statement (due in early December, confusingly) a judgment is likely. Simply this: it hasn't worked. None of it has even begun to look as if it might possibly work. But when the traders begin to talk up a lucrative crisis, and when Britain's borrowing costs begin to rise, bear a simple question in mind. Why hasn't it worked?Why hasn't it worked for Spain, where the real economy was once in vastly better shape than ours? Why hasn't it worked in Greece, where repeated doses of strong medicine have brought the patient to death's door? Why should it work in France, where yesterday Francois Hollande broke all his Socialist promises and adopted a "combat budget" that will enshrine austerity. Hollande preserves decency only by refusing to cut state spending; the rest is emergency economics.All of this would be fine if a single chink of light became visible. What is becoming odd, indeed bizarre, is that these budgetary rituals are being staged across Europe to no avail without a single attempt at an explanation in the glittering corridors of power. They no longer bother with excuses. They say nothing at all.In some places, already, there is blood on the streets. At this rate, Greece could cease to function as a society. Spain has begun to creak under the strain of common misery. Yet the people who want their debts settled and their bonds honoured simply demand another round of cuts. Nobody, in finance or political office, says, "It isn't working because -" Our own Chancellor appears to regard the task as beneath him. In what other emergency would this be accepted?From what I read and hear, nobody in Greece still believes a word of it. A country is being looted of what remains of its assets while the time for corporate looting remains. Now the markets will nod approvingly, for a week or so, and the process will resume. Mr Hollande seems to fear that France is next in line. Is there something, then, Mr Osborne isn't telling us?None of this is theoretical. Catalonia will hold elections in November based on the proposition that independence might be preferable to the Spanish debacle, that self-determination might be required when all of the alternatives have failed, and failed catastrophically. Unlike another small nation I could mention, the Catalans are not even allowed one of those famous yes/no referendums under the Spanish constitution. They will vote, though.Those who glory in the dissolution of the eurozone forget the relationship between economics and reality. If there were a case for basic nationalism before the banking crisis, the case can only acquire weight hereafter. How could Catalonia, inherently prosperous, be worse off in freedom from Madrid? How could Scotland suffer more if it rejected Mr Osborne's extraordinary failures? Forget the sound of pipes: independence might only be the least-worse choice.You can hear the usual reply. How would little Scotland have coped with the cost of its failed banks? The evangelists of the market should take a look at the blasphemies of tiny Iceland. Those people told the bond dealers and the market makers – pardon my Norse – to stick it. Debts would be settled in due course. The sky did not fall in. Iceland has had two years of growth; unemployment is just over 6%; and borrowing is cheap.You can understand Catalonia's temptations. You can, from the outside, begin to grasp Greek fury and Spanish angst. That achieved, you can only wonder – or draw your own conclusions – over why Mr Osborne ploughs on, and why swathes of societies are being destroyed in a futile effort to balance the books for international loan sharks. The panacea has turned out to be an absurd insult yet still, in Britain and beyond, we plough on.Living beyond your means: that's a favoured phrase among the kitchen economists and those who leverage debt routinely. They expect us to believe that the world actually runs as a penny-in, penny-out business. So why did Icelandic debt turn out to be manageable and Greek debt became, supposedly, a threat to the entire European banking system? Membership of the euro had nothing to do with it. One fact is on the record: Iceland refused to be bullied.It insisted, too, that it was a sovereign nation. For Catalonia, for Scotland, for Ireland, Portugal and others besides, this might turn out to be an overlooked detail. Among the bond-trading class, national autonomy is dismissed as an archaic nonsense. In an interconnected, fast-computer world nobody is supposed to enjoy the luxury of liberty and choice. We are all the servants, say the high priests, of the market god.To doubt it is equivalent to asking a simple question of Mr Osborne. His gleeful assault on Britain's economy has produced hideous results. Why is that? And why won't he, his party, its allies, or its media friends, explain the reasons for failure? Then they could address the possibility that small nations might make better democratic choices.Greece might have to collapse before that chance arrives. Spain might break up. We might have a French crisis before this is done. But the rest of us might also learn some lessons from the process. Spain now requires, on a rough count, about as many euro billions as have "fled" Spain in recent months. The Spanish people might want to look into the who, where and how, and then ask who really runs their country.Some 7.5 million Catalans will meanwhile have the chance to say that independence couldn't be worse. They will be first in the queue, I suspect, and first to think again about the place of small nations in a big, brutal world. It's about time.Mr Osborne and the persecutors of Greece have adopted the basic IMF/World Bank crisis-management model to economies. It says that those who inflict the debt must always get paid first, no matter what. But they have conjured no miracles with that.Austerity is the intellectual equivalent of applying leeches to the sick. It's medieval, malign and misinformed. They know it, too.

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A chink of hope amid the abject failure of austerity

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