by Peter Watt
I am worried, really worried. And not just about where the Labour party goes after this week’s leaders speech. Although I certainly am worried about that.
No, what really worries me is the economy. Although I am no economist I can read the runes. Europe and America’s economies are in trouble, big trouble. Unemployment is rising. And every day seems to bring a new round of the latest economic indicators – and they indicate that something really bad is happening.
Think back to when Gordon Brown was busy saving the world. We were shocked that banks, those rock solid bastions of capitalism, could actually fail. I remember the uncertainty and fear in those months, when it seemed that the economic system, as we knew it, could collapse. Shops started closing on our high streets. Where were you when Woolworths closed?
Interest rates and the stock markets were in free fall. And the numbers being used to describe the scale of bailouts were so big that they seemed meaningless. In fact, what we now know, thanks to the memoirs of Alistair Darling and others, is that in reality the situation was even worse. Some pretty big high street banks were hours away from turning off their ATMs.
So now, a mere two years later, we are looking at a worse situation where countries, not banks, are weeks away from failing. And we’re not talking small third world countries. We are talking mainstream European countries like Greece, Portugal, Ireland, Italy and Spain. For pity’s sake, I’ve been on holiday to every one of them. It was only a few weeks ago that the US was a few hours away from running out of cash. The US for pity’s sake. But no one seems worried. I don’t get it. Am I missing something?
Last week the Lib Dems got all hot under the collar about how rude they could or could not be to their coalition partners. Barely a peep about the potential economic catastrophe that we are facing. This week, the Labour party got excited about Ed Balls being tough on the deficit and hot under the collar at the mere mention of Tony Blair’s name. Barely a peep about the tsunami of Euro debt coming our way.
And next week? Let’s wait and see, but I suspect that we will get some “steady as she goes messages” and a good sprinkling of “red” or “weird” Ed jokes. Quite a few Tories will get hot under the collar about the EU and call for us to leave. But will this feel like a conference being held under the impending cloud of a Greek induced economic Armageddon? No.
So what the hell is going on? If the Greeks default, controlled or otherwise, that will scare the banks that have lent money to Ireland, Portugal and so on. And it will scare the banks that lent money to the banks that lent money to these countries. So they will stop lending money to each other, because they are worried about which of their bank mates is secretly in danger of folding because they over lent to countries that are now in danger of defaulting.
The wheels of the international banking system will begin to grind to a halt. It will also cost those countries more to borrow and, as they are all running deficits, they will begin to run out of money. Credit will dry up across Europe, businesses will fold, exports will slow down as economies collapse and economic uncertainty will be the watch word. Meanwhile, the austerity measures, being imposed by countries to try and reduce their reliance on new borrowing, may lead to civil strife on a huge scale as people lose their jobs and take pay cuts. And it seems that in reality, it is not “if” Greece defaults but “when”.
But watching the party conferences and reading the reports of the debates and petty rows, you are left with a strong sense of fiddling while Athens, Lisbon and Rome burn. The public already have a strong sense that political parties are out of touch. Imagine how miffed they will be when it really hits the fan and no one seemed to have noticed what was happening. Still, at least the refounding Labour internal party reforms were passed. And thank goodness Nick Clegg survived his conference without a vote on the NHS.
Maybe I’m wrong and it’s not nearly as serious as I think. But if it is, then this has to go down as one of the strangest build-ups to an entirely predictable crisis ever. There’s certainly a debate to be had about policies for growth, speed of cuts, plan A v plan B. But if the Eurozone implodes; that will all seem a bit irrelevant.
But as I said, maybe I’m wrong and I can get back to worrying about the parlous state of the Labour party. We’ll certainly know soon enough but I suspect it will be a rocky ride.
Peter Watt is a former general secretary of the Labour party.