They still don't get it

Tuesday, January 20, 2009

They still don't get it

You would have to live on another planet not to be aware that the global – and especially the British – economy was in meltdown. While some other newspapers indulge in Obamania, The Daily Telegraph, at least, devotes the bulk of today's edition to the accelerating crisis.

But, despite the acres of newsprint, it seems that the learned – and not so learned – commentators have not even begun to understand the nature of the crisis and its root causes, the one begetting the other.

This is seen in the Telegraph leader (print edition only) which attributes the UK banking problem, with its "toxic debts" and excess credit to a "regulatory regime that allowed it to happen". But this, the paper asserts, was "designed and constructed" by Mr Brown, which makes him "complicit" in the collapse of the country's most important industry.

Viewed as always through the prism of national politics, what this fails to recognise is that, while the financial system was globalising, so was the regulatory system – with the Basel committee and other international bodies taking the helm.

The net effect was that we were saddled with an inflexible, slow moving and wholly inadequate system of regulation and, as importantly, it was one over which no single – or any – nation had control. As was the global financial system out of control, so was the regulatory system.

It is instructive, therefore, to see that the response of the British government has been to nationalise the banking system. The effect of that is to reassert national control. But there is no recognition that the other half of the equation – the regulatory system – also needs to be nationalised.

Thus, in effect, we are getting the worst of all possible worlds. While private companies are being bought up by the government with public (i.e., our) funds, the very system which allowed them to go to the brink of destruction – and even beyond – is being left almost completely untouched, its role wholly unrecognised.

To that extent, Brown is dealing with the symptoms of the crisis and not the cause, which any doctor will tell you is not the optimal way of dealing with a problem. But when we have the serried ranks of the establishment – which includes the government, the opposition and the media – refusing even to do a proper diagnosis, there is very little chance of the correct remedies being applied.

That, unfortunately, leaves the rest of us as spectators, able only to watch the developing train crash, without in any way being able to influence the outcome. Our only role, in due course, will be to pay for the mess but, this time, we have no assurance whatsoever that it will not be repeated. As long as the idea of returning to national control over our own assets and businesses is rejected so roundly by our ruling classes, nothing will get better.

And that idea, sadly, has yet to re-establish itself. We have a long way yet before we reach bottom and it becomes fashionable again.

Update: Ambrose offers his latest "take" on the slide in sterling. "For the first time since this crisis began eighteen months ago," he writes, "I am seriously worried that British government is losing control."

Surely the point is – and it is one I have made many times – is that the British government lost control a long time ago. Interestingly, in December 2007, I wrote a piece headed "powerless", picking up on a Telegraph leader headed: "Gordon Brown is in control of very little". That was true then and it is true now.

In many ways, Brown is as much a passenger of events as are we all. That is the really terrifying thing – nobody is really in control. The mighty machine of global finance is falling apart and there is nothing anyone can do to stop it. No wonder Obama is taking several days out for his inauguration celebrations. Perhaps he is hoping that, by the time he gets to his desk in the Oval Office, it will all be over, with just the jobs of clearing up the wreckage and rebuilding to do.

COMMENT THREAD

Russia, Georgia and the EU

There are few things more irritating than listening to instructions on what the EU should be doing from people who clearly do not know the first thing about that collection of institutions. For once I am not talking about Conservative politicians and wannabe politicians but about the former Gergian Foreign Minister, Salome Zourabichvili, who gave a talk to the Henry Jackson Society this lunchtime, entitled "Russia and Georgia: The problem Europe would rather forget".

Nothing wrong with the second part of that title except for the exclusivity. "Europe" would rather forget about most problems, internal or external.

As it happens, Ms Zourabichvili's biography does not inspire one with any sort of confidence in her solid judgement but, at the very least, as a former member of the French foreign service (even while Foreign Minister in the Georgian government, which must have raised questions of conflicting interests) she ought to know a little more about the European Union.

It is possibly her Francophile background that prompts to castigate the outgoing American Administration as having harmed Georgia more than most people realize and expressing some certainty in the incoming Administration (just as soon as it gets over the lengthy inauguration festivities).

According to Ms Zourabichvili the EU has certain responsibility towards Georgia, Ukraine and other "neighbourhood" countries, especially as the new American Administration is likely to concentrate on other matters, such as Iraq, Afghanistan, Gaza, the economy and so on. How she knows this is a mystery but her point that the EU ought to make it clear that "European" countries are its responsibility and the US can rely on its allies is a good one.

At least, it would be a good one, if one did not immediately recall the last time the then EC announced just that. "This is Europe's hour," - said Jacques Poos ofLuxembourg, then holder of the rotating presidency. He was talking about the disintegrating Yugoslavia and a right mess the EC/EU made of it. Perhaps, Ms Zourabichvili does not recall those days, despite being a high ranking French diplomat at the time.

The EU, according to her, has various other responsibilities. There are those 300 observers, whom Russia appears to accept while getting rid of the OSCEones and probably closing down the UN mission quite soon. One can't help wondering why Russia thinks it has no particular difficulty with the EU keeping its observers there while refuses to countenance the OSCE.

One or two things the former Foreign Minister did not mention. The word NATO did not cross her lips. Neither did she refer to the fact that the Russians have broken the agreed cease-fire several times, despite the EU resuming the Partnership and Cooperation Agreement talks early last December. Could there be a connection between that event and the benign attitude with which the Russian government views the EU observers? And might this benign attitude not change if the 300 temporary observers are turned into some kind of a permanent EU presence, as Ms Zourabichvili suggested several times in her talk?

Much of the talk was taken up, as I said at the beginning, with advice on how the EU could make its interests in the area clear to Russia, thus forcing the latter to make its interests clear. She does have a point - it is not entirely clear what Russia has gained from that incursion last summer and from acquiring two more South Caucasian autonomous republics. Unless, of course, the whole episode was directed at the domestic audience, whipping up its fears of the enemy that is all around them and, even, inside the country.

The point is, the former Foreign Minister repeated several times, that the EU must make its interests clear in order to make people understand what its foreign policy is. Well, dear former Foreign Minister and French diplomat, that is the basic problem. The EU has no single set of interests anywhere, has no real policy towards its neighbours or near-neighbours and that is why there can be no EU foreign policy, no matter what the French President may pretend. You see, dear fFM&Fd, however hard President Sarkozy (and his predecessor) may try, nobody apart from the French and members of the State Department believe that French and European foreign policies are identical.

The EU, according to Ms Zourabichvili, is in a good position to help develop democracy in the two authoritarian states, Russia and Georgia, though the latter is probably more susceptible to the idea (especially if Ms Zourabichvili finally acquires some political support in the country, one assumes). Apparently, she labours under the misapprehension that the EU is a democracy as well as an organization that has certain interests.

Sadly, as soon as the Georgian crisis was over the European consensus (by which, I think, she meant French policy) disintegrated and Russia once again finds herself dealing with individual countries separately. This must be overcome.

Interestingly, Ms Zourabichvili proudly proclaimed that the supposed weaknesses of the EU are, in reality its strengths. These are a more pragmatic attitude to international affairs, diversity of opinion and lack of military prowess. In other words, complete lack of integrity, no common ground and no real ability to back up its demands or requests, should these materialize.

I think it is time Ms Zourabichvili came back to where she belongs: the French diplomatic service.