Meltdown hits New Labour
The turmoil in global financial markets is now reflecting itself as paralysis and confusion in the minds and actions of politicians, amid opposition from bankers to their plans for more regulation. Most significantly, the crisis is also finding a strong echo in the opinions of voters, especially in Britain where confidence in the Brown government has plunged to a record low.
Over the weekend, the Group of Seven industrialised nations and the International Monetary Fund governing council made up of global finance ministers and central bank governors, endorsed nothing less than a 65-point plan to reform global financial markets. The plan involves raising the amount of capital banks have to hold if they want to invest in complex credit securities, new disclosure requirements and the creation of a “college of supervisors” from different countries to monitor banks.
This plan was dead in the water almost as soon as it was announced. Wall Street bankers rejected the G7 call to raise more capital, saying they were opposed to selling shares at the current depressed prices while others advocated self regulation. In any case, there was no particular timetable for implementing the changes, which would be left up to national governments to carry through.
As to the present crisis, there was nothing in the way of either a plan or a strategy. Ministers actually rejected the IMF’s call for globally co-ordinated public intervention to tackle the problems in the financial system directly. With the dollar and the pound continuing their free fall on currency markets, the G7 also ruled out any intervention in this area despite their fears that the slide could spiral out of control and intensify the economic recession.
Grandiose plans combined with lack of actual activity are a graphic illustration of the impotence of the G7, IMF and other global institutions in the face of the credit crunch. Last week, for example, the Bank of England cut interest rates only to see lenders not only fail to pass this on to homeowners but in some cases increase rates to borrowers. Now Alistair Darling, the chancellor, has called a meeting to urge them to respond to interest rate cuts while the bankers say the credit crunch prevents them from doing so. The problems of banks was shown today when Bradford & Bingley led a fall in shares after reports that it was going to have raise new capital to fill a large hole in its balance sheet.
There was more bad news for the government today when a poll revealed that Gordon Brown is less trusted to steer his country through the global financial crisis than any other major western European leader. A Financial Times/Harris poll suggests Britons no longer trust his government on the economy – 68% said they were “not confident at all” in its ability to deal with the economic crisis. The figure was 52% in Germany, 51% in the US, 50% in France, 43% in Italy and 36% in Spain. This came the day after a Sunday Times poll which gave the Tories a 16 point lead over New Labour.
Even previously pro-government newspapers like the Financial Times are beginning to have doubts. Its editorial said: “If British voters are worried about the global credit squeeze – more than a third expect their finances to worsen – then they are right to be. They have no more reason to trust politicians’ assurances that the UK can weather a US recession than believe their next-door neighbour’s.”
The paper added: “Like the US, the UK has relied on a debt-fuelled boom in consumer spending to drive growth. As the credit squeeze begins to bite and households cut back borrowing, overall demand is likely to weaken. A long-predicted correction now under way in the UK’s inflated property market will be painful too.” New Labour is unravelling almost as fast as the financial system itself and the need to create alternative political movements to challenge corporate and financial power is more urgent than ever.
AWTW communications editor
14 April 2008