Global Financial Crisis: The Political Fallout

It is little wonder that banks are reluctant to offer credit to the citizen, to businesses or to each other when bearing in mind the level of debt that currently exists. Official estimates of the American debt currently sit at $10.6 Trillion Dollars. A boutique investment analyst in Moscow considers the US debt to be nearer $11 Trillion dollars. However, two well known US investment banks are far less optimistic and unofficially estimate the debt level to be $26 Trillion Dollars, in effect 250% of US GDP.

In the UK, informed sources place UK debt levels nearer £2.5 trillion pounds. By the way, the UK’s GDP stands at about £1.5 trillion pounds.

What debt are we talking about? – Housing debt, credit card debt and debt ridden financial instruments, such as derivatives, all of which undermine the confidence of the market.

What value is better governance and tighter regulation when this deeply worrying financial calamity arose because of the close inter-relationship between government and the financial services sector? A cursory examination of Gordon Brown’s best practice recommendations for the future are likely only to scratch the surface. The very reason debt arose is the irresponsible adoption of “off balance sheet accounting.”

Please remember that Enron executives were prosecuted and found guilty for misleading the markets and the public with their financial misdeeds. What the US and UK governments have done under comparable circumstances is bail out the banks. Instead of prosecution, billions of tax holder moneys will be used to safeguard the banks whilst also supporting bankers’ bonus payments. Where does the justice lie in all that?

In response, the citizen is unlikely to simply display their distaste and then leave it at that! There is likely to be a political fall out!

In order for the US to pay off a debt of between 11-26 Trillion dollars, citizens are unlikely to be tasked with considerably tightening their belts for the next 3 years or so. Informed but unofficial comment from the White House highlights that the Fed is likely to simply print its way out of this problem. Something like 26 trillion dollars plus will swamp the market on the basis that America considers itself to be as good as the gold standard. The effect of that on smaller nations, and Europe as a whole, is just unimaginable.

So what will be the European response?

First a questioning of why? Why have we as Europe linked ourselves to a bankrupt nation that will do anything it can to pull itself out of its woes at the expense of everybody else?

Second, there’s an evident public distaste for shareholder value. Whatever capitalism and shareholder value are, what many will come to recognise is that quarterly reporting, consolidated at the end of the year, drives the corporation.  How can striving to make a profit every three months positively facilitate addressing our current problems? For example, flooding in the UK, as much as it’s due to climate change, is a vexed concern. The real problem is not just climate change, but that of underinvested, outdated Victorian-built drainage systems. We need a ten year public works programme spending billions to get our social infrastructure right.

Further, how many more Katrinas will hit the US? How many more Lehman Brothers-like collapses will stretch the insurance market in London to breaking point? We need to structure our finances to allow large scale project investment do its job. We need clearly structured stakeholder financing that takes account of the long term. The citizen benefits! The insurance companies and pension funds benefit! Health services benefit! The only ones who lose out are the very rich who make their money through speculation and the non-transparent hedge funds. So, the question that is already being asked is why are we working to make the rich and hedge funds richer and, by implication, us all poorer?

Third, there is likely to be an emergence of a new political movement to have Europe as one nation as much  as possible to ensure our financial and communal future. In order to achieve that target, the removal of NATO from European soil will be the first priority. Then we’ll see the founding of a continental army supported by an independent European armament industry. Only through strength through unity can Europe shield itself from Anglo-American excesses.

Fourth, this political pushback will question the value of the European Commission, which is in fact a collection of clever civil servants who ensure that European policy is determined by the completely opaque Council of Ministers. The Council of Ministers is a politician’s dream: Be elected in one country and then do whatever the hell you want across Europe, exclusively shielded from being held publically accountable by Brussels doublespeak. It is long overdue that the skills of the Commission be transferred to the European Parliament in Strasburg. What is then needed is a debate on the nature of the new Upper and Lower House, the shape of a European federal government and the functions of that Federal entity and its relations with the States of Europe. From that we will have true social democratic union.

The fifth response is a complete rethink of European foreign policy. Why should Russia be demonised and be seen as the enemy? Partnership with Russia, fully utilising the 50 or so million Europeans who are fluent Russian speakers, in order to jointly and positively exploit the resources of Russia, will guarantee Europe’s energy and resource future for over 100 years. Of course, dismantling the missile sites targeting Russia is going to be an absolute requirement. The same thinking applies concerning Europe’s relationship with the Middle East. Make no mistake, we are being dragged into the bombing and dismantling of Iran. No one, not even the US, will benefit from this action. In fact, the resultant terrorist activity will reach a scale few of us can imagine.

Where this possible political backlash is likely to leave the UK is the critical question. If Alex Salmond continues with his Scottish separation policy and as a result, forges stronger links with Europe, England is likely to be isolated. With the bastion of US hegemony in Europe undermined, do not be surprised to witness how powerful the ‘Europe as a one’ movement will be.