Tuesday’s papers led with the interesting story that the EU is concerned that Britain will be unable to lower its debt to the required 3% of GDP by 2014. This casts aspersions on the strategy of the government before next week’s budget – indeed a veiled threat was made at the weekend by the head of Japanese bank Nomura that a hung parliament would lead to the devaluation of the pound.
And as if to add to the growing right-wing consensus that public spending cuts should pay for the bankers’ recession, the media are emphasising the effect of enormous cuts already made in Greece and then telling President George Papandreou he hasn’t done enough.
The “new” Tories justify their planned savage cuts in public spending on the basis that the huge borrowing required to buy out the banks has to be repaid by cutting public expenditure and thus rapidly increasing unemployment for both the people cut and subsequently for anyone they used to buy goods from.
The approach taken by the government during the banking crisis of 2008 was a mixed one. In part it was the product of a process of financial deregulation stretching back to Thatcher’s “big bang” of 1982 and Gordon Brown’s decade – long pursuit of financial deregulation.
His response of taking controlling shares in all of the major banks when the crisis began was a correct one, but there Brown’s interventionism ended.
Instead of converting the major banks into fully publicly owned companies, the shareholding was transferred to a holding company, the sole function of which is to dispose of the shares as quickly as possible.
On the Politics Show last Sunday Gordon Brown claimed that every penny loaned to the banks would be repaid by them. Meanwhile, the manifesto for the general election is being written and Alistair Darling is putting the finishing touches to next week’s budget.
As well as bring a crossroads for Britain, this is also a huge crossroads for Labour. Any politician seriously proposing to reduce British borrowing to the levels now required by the EU in less than three years ought to look to Greece, and the political and public reaction to the slashing of wages, services and jobs.
The new Labour strategy of limited financial regulation, the contracting out of services and the reluctance to raise thresholds for the richest in society has left the gap between the rich and the poor as wide as ever.
Welcome as the government’s anti-poverty measures have been, all of this is clearly at risk if we move into huge job losses, tax increases, and an advancing recession. More than ever, the arguments for intervention and socialism are the most relevant.
This is an abridged version of Jeremy’s weekly column in the Morning Star.