Saturday, 29 November 2008

Common Sense

The core European Union countries are agreed now on how the recession is faced. With the relaxation of the constraints of the Stability and Growth Pact, each member state can react to regional expressions of the economic and financial threat, without infringing formal rules and their goals, devised for use when times are good. Communitaire sentiment is reliably deep-seated enough to permit this flexibility yet maintain long term interest.

The central agreement is extreme caution in borrowing, or attempting to restart the excesses of generally expanding credit. Case by case and locality by locality considerations of interventions by government are the order of the day. Where key economic and industrial interest is at stake there will be action by government, by private sources and by sectoral representatives, brokered by a long-established democratic set of institutions. There will be no sales-tax cuts, ineffective in enticing consumer spending anyway. There is recognition of the stable patterns of private consumption in core European member states, and the remarkably low levels of personal indebtedness. There will be no irresponsible expansions of public debt, certainly not to levels that would have most Europeans out on the streets protesting. The steady-as-she-goes tactic makes a great deal more sense than the systemic-crisis, demanding big bang solutions, cover up.

As the Frankfurter Allgemeine Zeitung (reported in Der Spiegel) writes:

"After the bank bailout, Chancellor Merkel has been feeling her way through crisis
management carefully. Balancing possibilities requires courage in a time when... governments faced with a flood of bad economic news, are heading for quick 'grand solutions' without regard to the negative impact on budgets or the disastrous consequences for competitiveness. In so doing the big bailout crowd runs the risk of encouraging worry and, with it, procrastination on the part of economic actors. We should be thankful to Angela Merkel for her calm probing, for grand solutions are difficult to audit and to calculate; they conceal big risks -- and a glance at the writings of Keynes won't deliver any panaceas...".

This view is embodied in the actions of all the core member-states.

The complete rejection of the analysis and policies adopted by our government by core Europe means that even if it were correct, the policies cannot work. Our non-financial economy is too small and too damaged, and our shattered financial economy too weak now; even the United States will find it hard to act effectively alone. And the United States is led by a popular, charismatic, elected leader - these political facts matter just as much as economic and financial realities.

For us there is only massive borrowing - not to implement keynesian-style solutions as is pretended - but simply to keep the financial fabric of the country from collapsing into holes. And if lenders choose not to lend, there is the monetisation of debt and inflation that frightens. Or both.

2009 is going to be bad. If we could face it together, acknowledging the need for retrenchment, enjoying some political and cultural unity, some political honesty about the state we are in, this would serve better than any more pseudo-keynesian claptrap and blaming its certain failure on the caution and prudence of others.

We don't need Leadership and global interventions by deluded messiahs. We need consensus and co-operation in our own country, we need the pragmatic and responsible application of the common sense other countries are demonstrating.

To obtain that the people need to be consulted in a general election.

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