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Australia Diary Australia

London Diary

19 November 2011

1:00 PM

19 November 2011

1:00 PM

I was in Britain last week for the International Democrat Union conference, the bi-annual meeting of the leaders of nearly 30 liberal-conservative political parties. John Howard is the IDU chairman. Former Liberal president Shane Stone is IDU vice president. The president of Georgia was there. His country is becoming an economic success story despite a threatening neighbour. Even in parts of Europe, supporting the rule of law carries risks. An opposition official from Belarus was present in London, grateful for the moral support of fellow centre-right members during several years in jail. ‘Advancing democratic values’ was the conference theme; keeping the economy strong was the conference focus because most leaders appreciated that you can’t have a strong society without a strong economy to sustain it. Host Prime Minister David Cameron’s keynote speech stressed that economic reform was a means to a better society, not an end in itself. The absence of several European leaders, kept at home by the eurozone crisis, only served to emphasise the point.

•••

What’s now known as the Global Financial Crisis was triggered by the collapse of Lehman Brothers. Along with many other banks, Lehmans was undone by the collapse in value of various ‘mortgage-backed securities’, with many of the underlying mortgages having been given to people who couldn’t afford them. The basic problem was people wanting what they couldn’t afford and taking out loans that they couldn’t repay. The realisation that such practices were endemic and unsustainable triggered a crisis of confidence in the banking system that, in turn, produced the sharpest contraction in global production since the Great Depression. Britain’s economy contracted by five per cent in 2009; Germany is the only European economy whose production has recovered to pre-GFC levels.

•••

If the collapse of a bank could have such consequences, the default of a country and the break-up of a currency union scarcely bears thinking about. Perhaps this is why the fundamental response to the difficulties of the weaker members of the eurozone has been to prop them up regardless of the cost. For the first time this week, as Greece got a new government and Italy a new prime minister, the French and the Germans are reportedly considering
a new euro, this time without the southern European countries whose economic culture is so different.

•••


All the options involve choosing between bad and worse, which explains why the people demanding ‘leadership’ (such as the UK Labour leader Ed Milliband and our own Prime Minister on her recent trip to the G20) are so keen to avoid specifics. It’s all very well to say that the Greeks and the Italians have to live within their means and that the Franco-German banks have to take a ‘haircut’, but saving the euro in its current form means the Germans forgiving the southern Europeans their debts and the southerners, in turn, accepting what might be years of austerity-induced economic stagnation. Both the Germans and the French have invested a huge amount of political capital in the euro and remain determined to hold it together, virtually irrespective of the economic cost.

•••

Devaluing the euro means big competitiveness problems for other countries and the prospect of trade wars. Restoring old currencies raises huge transitional issues and the spectre of sovereign debt default. Hence the unpalatable question now being posed: whether the alternative to maintaining the unsustainable may be engineering the intolerable, a managed-as-best-it-can-be break-up of the euro in preference to a recession-inducing unilateral withdrawal from it of the countries whose economies it is distorting.

•••

Britain is not in the euro but will be affected by its fate, as the UK ministers I met fully understand. Foreign Secretary William Hague ruefully observes that it gives him no pleasure to have had his judgment vindicated. Regardless of what happens to the euro, says Chancellor of the Exchequer George Osborne, for Britain the challenge is to restore growth. As Osborne said recently, you won’t save the planet by closing down the British economy. The fine print in the UK’s commitment to deeper emissions cuts is a similar commitment by the rest of Europe that is highly unlikely to be forthcoming. Although the UK Climate Change Secretary Chris Huhne maintains the line that countries such as China are ‘moving’ on emissions, all the key members of the British government now seem to think that there are far more pressing issues to deal with.

•••

The key initiatives of the UK coalition government are welfare reform and schools that are free of bureaucratic interference as well as free of fees. The reforms to employment services and to the disability pension masterminded by Iain Duncan Smith are an extension of the work of the former Howard government in Australia. The education reforms being driven by Michael Gove also have an antipodean echo: the West Australian government’s independent public school programme. I visited the Harris academy school in a poor part of London, and listened to Year 11 sociology students being critical of the ‘something for nothing’ culture of welfare.

•••

London now has a new semi-permanent protest, an anti-bank tent village outside St Paul’s Cathedral, to match the anti-war tents across the road from the Houses of Parliament. It’s one of the incongruities of contemporary London: policemen carrying submachine guns on one side of the street; people breaking the law with impunity on the other. Still, the protestors don’t seem to be impeding worshippers on their way to evensong, even those dressed like bankers.

•••

There has been some progress over the past year. Twelve months ago, you had to register to use the bikes installed by London Mayor Boris Johnson. Now, a credit card is enough to give you the extra mobility they provide. Riding a ‘Boris bike’ from the Brompton Oratory to my hotel, I felt I was keeping alive Orwell’s vision of the England of old maids cycling to their parish church. 


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