Tag Archive: Politics

The world leaders need a leader


Is this the international leader the world requires?

The world calls for a leader as governments across Europe collapse, yet it may be that the man for the moment was the first to fall victim to the economic crisis.


Gordon Brown had a turbulent three years as Prime Minister and domestically it all went wrong from him. The 10p tax fiasco undermined his government, his inability to appease his cabinet undermined his party and by calling a ‘lil old lady’ a bigot, he undermined his relationship with the public.


But whilst Brown failed to find his feet as a domestic Prime Minister, he did much to bolster his curriculum vitae as an international leader to call on when there is a crisis. As Prime Minister he convinced Europeans that the banking crisis was a global problem, stabilised devolution in Northern Ireland, and even got the Chinese to agree (in principle…. kind of) to the Copenhagen climate agreement.  But his greatest achievement was the G20 summit in London where the leading nations agreed to inject $1 trillion into the global economy.


Perhaps the most lasting achievement of Brown’s international ventures was his ability to pull China into the negotiations. The rising superpower has over $3 trillion in reserves and is the key to economic recovery; it must be pulled, tugged and cajoled into opening up its chequebook and buying foreign goods. The problem is that the country is export driven and wants to keep its currency artificially low to protect this interest. But the leadership can be forced into realising that it is in their interests to intervene as a strong Europe and America mean a strong market for Chinese goods.


But as with Churchill before him, Brown’s successes on an international stage were not enough to ensure a further term as Prime Minister. So where will the leadership come from?


China must be thrust to the forefront of the G20. This is what Obama and Brown realised and did so brilliantly in 2009 but seems to have been a lesson not heeded, as the latest instalment in Cannes was really the France, Germany and Greece show. China does not willingly push to spend its money externally without a guarantee of a return, so when austerity measures are placed at the heart of a meeting their politicians will happily take a further step back.


The traditional world leader is of course the United States of America, but President Obama is in no position to take up the mantle. The ‘greatest democracy in the world’ continues to fail as a system. He’s struggling to operate due to the severe restraints of a filibustering Republican House of Representatives home to a lunatic fringe of ‘Tea Party’ politicians. An approaching election will do nothing to free up time to rally the world behind a common cause.


So attention shifts from the leader of the free world to the leader of the Eurozone. Germany is the main European power and the head of the Eurozone, it needs to be strong and proactive but its leadership is floundering. Merkel is clearly an indecisive character by nature and it doesn’t help that the country she represents burdens here with a weighty recent history. Memories of the Weimar Republic and the hyperinflation that destroyed the German currency have, in the minds of the political elite, ruled out the use of the ECB as a lender of last resort. To expose the central bank to huge lending, quantitative easing and inflation is still a terrifying prospect for a country where a loaf of bread used to cost a wheelbarrow full of money.

So is there another British Prime Minister to rise to the challenge? Categorically no.


The UK has an awkward international position. Obama has made it a point of policy to look to the east making it difficult for the Prime Minister to maintain the ‘special relationship’. At the same time our European neighbours are increasingly focussing internally, decreasing the UK’s influence on the continent.  Gordon Brown maintained very close relationships with both Chancellor Merkel and President Sarkozy earning their respect and their ear. Cameron has largely undone Brown’s meticulous work, earning the title ‘lightweight’ from Obama and being told to ‘shut up’ by Sarkozy. Though this country’s days of controlling an empire is a distant memory, Gordon Brown showed that Britain could still have a profound effect on global politics. But Prime Minister Cameron, aided by his vociferous Eurosceptic party, hasn’t made friends with anybody and is more isolated than any UK leader in memory.


Chancellor Merkel is the unwilling incumbent of the hot seat and though incredibly hesitant must eventually place her faith in the ECB. Whilst this may prove to take a long time to achieve, the wonderful truth about continuously doing the wrong thing is that eventually you are forced to do the right thing.


Deadline set for Greek solution

Crunch time for Eurozone leaders

In an information light announcement at a bilateral summit in Berlin, President Sarkozy and Chancellor Merkel set October as a deadline to reach agreement on a package of measures to stabilise the Eurozone. This will include a recapitalisation of European banks if required. After months of dithering over the politics and ignoring the economics, their hand is clearly being forced by growing international pressure for action as the announcement will come just before November’s G20 summit.

Whilst detail is thin on the ground it does seem that recapitalisation of banks will be at the forefront of any announcement. For weeks there has been talk of a boost to the European Financial Stability Fund (EFSF) with figures as high as €2tn being discussed in order to offer liquidity to member states. But after the break up of the Belgian bank Dexia and downgrade in credit rating of 12 UK financial firms, attention has moved to avoiding a repeat of 2008’s banking crisis.

The international pressure for Europe to find a resolution is enormous. Today in an interview with the Financial Times Mr Cameron urged the euro membership to accept collective responsibility and backed an increase in the eurozone’s €440bn (£378bn) bailout fund. The hope is that decisive action will bring an end to the uncertainty that is currently destroying confidence in the markets.

But how will the cards fall for Greece? Whilst the current Prime Minister has refused to speculate on a Greek default, former PM John Major made it clear yesterday in an interview with the BBC that Greece would have to default.

“In the short term the banks need to be recapitalised and Greece needs to default, the sooner that happens… the sooner you remove something from the overhang in the markets.”

In this scenario banks would take a big haircut and if they weren’t sufficiently capitalised it would spark another banking collapse. But it seems increasingly likely that this will be the course of action as the German news agency DPA has reported a discussion between Eurogroup senior officials about a potential haircut of up to 60 per cent on Greek bonds’.

Reassurances by Sarkozy and Merkel that recapitalisation is on the table and banks would be given all the support they needed add weight to this likelihood.

A default would badly damage banks that are exposed to the Greek debt and would set a dangerous precedent to other heavily indebted economies. At the moment Italy and Spain are not insolvent but have liquidity problems that would not be helped by the drying up of lending likely to occur if banks take a haircut over Greece. But banks may be prepared to accept this so long as they are sufficiently recapitalised. The time for leadership and the use of EFSF funds has come and perhaps an acceptance of a default will end the uncertainty.