Peter Watt’s 2012 crystal ball

by Peter Watt

No doubt we will begin to see people’s predictions for 2012 over the next few days. So here are mine.  I have two, which are inter-related and they are to do with the economy and leadership.

First the economy. You don’t need to be much of a soothsayer to know that next year will all be about the horrific state of the international economy. Much of the world, although by no means all, is teetering on the edge of recession. I am no longer sure that anyone knows either what is happening or how to sort it. Years of trade deficits in much of the West coupled with cheap credit of which many individuals and countries took advantage have produced huge instability. Add in a toxic mix of complex financial instruments that would challenge the average nuclear physicist plus a bodged European single currency. You have to ask how we never saw this coming. But it seems that payback time is nearly upon us.

The euro might collapse; it might not. I suspect that ultimately it won’t. But the next few weeks will all be about the desperate battle between countries and the markets. The chances are that the markets will win. There will be endless Euro summits that nearly make a decision and then definitely don’t.  Spain, Italy and probably France will come under pressure and the cost of borrowing and servicing their debt will rise. Germany is going to have to decide what will cost its taxpayers more – saving the euro or having it collapse. But something will have to give, because the status-quo cannot endure. Either there will be a much stronger financial union, with Germany effectively calling the economic shots within the eurozone, or the currency will collapse. Both scenarios will have huge implications for the UK, European and indeed the world economy. Even those who feel that a collapse of the euro would be the best outcome can’t really know what the immediate implications would be.

So in 2012 there will be stories of banks coming under pressure and some will probably collapse. They can’t all be saved and probably shouldn’t be. Savers will start to fear for their funds and the battle will be on to prevent a run on others.  There is a real risk that at some point the financial system will begin to really clog up. Cash machines could close and the doors of banks could be locked. Firms will go bust and jobs will be lost.

But where will it end? It certainly won’t end at the Channel. British banks are in it up to their necks and there is only so much printing of money that the government can do to keep the UK as a ‘safe haven’.  Once the contagion really takes hold it may well become unstoppable. How many savers’ hard-earned nest eggs will governments have to underwrite? Who knows, but when people start losing their savings we will know just how bad it is going to be.

Which takes me to my second prediction on leadership. Every crisis has its winners and losers. David Cameron had a good war in Libya. Ed Miliband had a good hacking scandal. But next year’s economic situation will test world leaders like no other crisis since the last one. The situation is certainly worse than that faced when Lehman collapsed. The reality is that there is not a huge amount that any single leader can do. World leaders will need to work together and someone will have to undertake the leadership role that Gordon Brown played in 2008/9 if a serious collective world response is to be marshalled. That someone will not be David Cameron, as he’s simply not up to playing that role. But over the next few years, a nervous and uncertain domestic electorate will be looking to see who looks as if they are providing leadership rather than just who is the leader. For instance, David Cameron emerged from what should have been a personal PR disaster at the recent euro Summit with his leadership qualities enhanced. This was despite messing up diplomatically and being out-manoeuvred by the French. He managed this because he made his position look strong and appeared tough. What a contrast with Gordon Brown. He emerged from his quiet, frantic but successful efforts to shore up the world economy with respect from his international peers and continuing unpopularity amongst the electorate at home. It may not be fair, but who said politics was fair?

So as we go into the period of maximum danger, it is very clear that Cameron is comfortably ahead with the public in the leadership stakes. Despite having had a bad year with scandals, u-turns and rebellions, he remains popular. He will of course be tested to the max with his own side increasingly restless, never mind his coalition partners, his international peers and of course the markets. But we need to be honest. If, despite all of the slings and arrows that the next year will throw his way, Cameron can continue to look statesmanlike and in charge, then there may be little that Ed can do.

Ed, though, will need to be patient. Cameron is not averse to the odd screw-up, and his luck may well desert him at some point.  If Cameron stutters then Ed must be ready and he is unlikely to get many opportunities. And so Ed must do all that he can to enhance his reputation as a leader. Because at the next election the economy will remain fragile. The electorate will therefore vote for whoever they think can provide leadership, and for the moment the electorate don’t think that Ed can.  So he and his team must do all they are able to improve his leadership numbers with voters. I am sure that they understand just how superficial some of this may be; that it is about impressions as much as stances taken; and that impressions can stick.

So 2012 will be a year of unprecedented economic crisis. In which the electorate will make its mind up about who looks like a leader. The answer to the latter will determine who wins the next election.

Peter Watt was general secretary of the Labour party.


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2 Responses to “Peter Watt’s 2012 crystal ball”

  1. Nick says:

    Cost of the bank bailout – 70 bn. Most of that was down to your mate buying shares at too high a price (like selling gold at a low), and insuring people after the house had burned down.

    True cost of UK government debts – 7,000 bn.

    It’s less than 1%.

    Meanwhile onwards and upwards with spending by the government, deeper and deeper into the mire.

    Since most of these debts are owed to ordinary people (not the fat cats in the civil service with their multi million pound pensions), its Joe Bloggs that is going to be hit.

  2. The Euro probably won’t survive. It is structurally unsound and even if German voters were to approve of their taxes and future financial obligations being hurled at the problem it will only prop it up for a little while longer. Replacing one set of rules; the wholesale breaking of which by its members including Germany and France caused the problems, with another set will not placate the markets. Nor will the threat of heavy fines keep the serial offenders in line. Trying to impose conformity by adding to their deficits would be a case of biting their nose off to spite your own face.

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