Iain Macwhirter on the economy.
Unintended irony of the week award must go to the shadow chancellor, George Osborne, for applauding the German finance minister Peer Steinbrueck's critical comments on the state of the UK debt economy.
Since when have British Tories taken advice from the Germans? Mrs Thatcher would sooner have taken advice from Neil Kinnock. The Conservatives have always had an almost visceral hostility to the German social market model of economic management, which placed social security above free markets and big government over the minimal state.
Back in the days of the ERM debacle in 1992, John Major almost went to war against the Bundesbankers for "talking down the pound". Changed days.
Herr Steinbrueck's comments on Britain's burgeoning debt problem may well have contributed to the pound's fall last week - though sterling has become so toxic on the markets recently it would probably have fallen anyway. But saying, in effect, that an EU member state's economic policies were barking, and likely to enslave future generations with unsustainable debt, was strong stuff.
The finance minister's jibe at Brown's "crass Keynesianism" was perhaps a little rich coming on the eve of Germany's backing of the £200 billion collective act of Keynesian interventionism by the EU as a whole. Indeed, Steinbrueck's financial doodlebug may well have been in part designed to divert attention from the fact the German government is itself now becoming a part of the debt economy. Ordinary Germans fear inflation more than any other Europeans and the mere hint that the Bundesbank was abandoning prudence for profligacy would be enough to rattle them. They don't like the thought of having to use wheelbarrows to collect their pay.
The British government would let you borrow the money to buy your barrow and call it an economic policy.
Brown was asking for it, of course. For the past 10 years he has been lecturing countries such as Germany on the need for deregulation, low public debt, balanced budgets - sentiments that are now as redundant as a Lehman Brothers broker. All Brown's golden rules about only borrowing to invest, about taking no risks with inflation - abandoned at the first whiff of trouble in favour of printing money and doubling the national debt. In the 1990s, Brown scorned the Germans for not cutting welfare spending and for supporting the manufacturing industry instead of encouraging sensible economic activities like derivatives trading and sub-prime lending.
Hardly surprising if the Germans want some payback now it has all gone titschen upschen. Indeed, Gordon Brown could reasonably be charged as an accessory after the economic crime of the century for allowing the City of London to incubate the derivative virus that has destroyed the global financial system.
No, the Germans aren't about to take any more lectures from Brown, especially now he appears to believe he is saving the world. Where we have consumer debt at £1.4 trillion, the Germans have minimal debt, few credit cards, no sub-prime mortgages and no house price bubble. Indeed, fewer than half of Germany's 80 million citizens have mortgages at all - they need a 30% deposit to buy a home - and 60% rent. Only 5% of Germans use credit cards regularly. Where we have chronic current account deficits, they have a healthy balance of trade.
The German way couldn't be any more different to our spendthrift, put-it-on-the-mortgage, debt-addicted society. Not surprising, then, if they are reluctant to emulate a country which is trying to solve a debt crisis by taking on ever more debt.
There is an intellectual incoherence about the British government's anti-recessionary policy which simply has to be addressed. You cannot be a chancellor who staked his reputation on prudence and then become the prime minister of profligacy.
Yes, economic circumstances have changed and governments have a duty to act in the face of looming economic depression. But that doesn't mean intervention at any cost, and it doesn't mean ill-considered intervention which contradicts everything you have stood for. At the very least there needs to be a strategy for getting rid of the debt - personal and public - that is destroying the UK economy.
Simply cutting interest rates, devaluing sterling and letting borrowing and inflation rip is not a policy but a series of economic spasms. It really is crass Keynesianism. Keynes may have called for governments to actively manage demand, but he was no enthusiast for unsustainable debt.
Britain already owes a total of £4 trillion in consumer, corporate and public debt - that is three times GDP. The banks - like HBOS - have a funding gap of £700bn over deposits they can no longer fund from wholesale money markets. The British banking losses don't disappear just because they have been taken on to the public accounts.
The government seems to think it can turn the clock back to 2007 - but the clock is broken. There must be a return to a savings culture. There must be reform of the housing market to prevent another boom, new rules for the Bank of England to curb asset bubbles. We need regulation of derivatives markets and closure of the tax havens which allowed banks to set up shadow entities. The hedge fund industry, which was based on abuse of tax havens, needs to be dismantled as a matter of urgency. As is becoming clear from scandals like that of Bernie Madoff, who ran a £50 billion scam, the hedge funds were essentially Ponzi pyramid schemes built on leveraged debt.
There needs to be something like a truth and reconciliation process in the City and Wall Street. Bankers need to be brought blinking into the light of public accountability. Executives like Peter Cummings of HBOS Corporate, who stands charged with irresponsible lending, need to be held to account, and at the very least relieved of their posts in these semi-nationalised institutions.
Above all, there needs to be more coherence in government, and less vanity. Gordon Brown seems genuinely to believe that he is the saviour of the world banking system. He is not; he was one of the agents of its downfall, a politician who sold his soul to the City, and its ludicrous financial engineering, and is now trying to disguise the mess he's made by hurling billions of pounds of taxpayers' money at a broken system. Future generations have not voted for Brown's mistakes, but they will pay for it.
