The next UK election: a contest in unpopularity

Continuing in our series of posts on the European Left, Andrew Gamble takes up the case of the United Kingdom and the prospects of the British Labour party in next year’s general election. Though opinion polls have consistently put Labour ahead of the governing Conservative party, Gamble suggests that behind this stability lies a more uncertain and volatile political landscape.  

Andrew Gamble is a professor of politics at the University of Cambridge. He is one of Britain’s leading political economists, and author of many critically acclaimed books, including The Free Economy and the Strong State: The Politics of Thatcherism, Hayek: The Iron Cage of Liberty, Politics and Fate, and The Spectre at the Feast: Capitalist Crisis and the Politics of Recession. Professor Gamble is joint editor of New Political Economy and The Political Quarterly, and a Fellow of the British Academy and the Academy of Social Sciences.

***

British politics exhibits a puzzling stability. In the eleven YouGov polls so far in January Labour has had an average lead of 6 per cent over the Conservatives. Its share has fluctuated between 37 and 40 per cent, the Conservatives between 31 and 34 per cent. The other two parties also have been stable; UKIP’s share fluctuating between 12 and 14 per cent and the Liberal Democrats between 8 and 11 per cent.  It has been a similar pattern for a long time now. Labour’s lead has come down but only gradually and there is no sign yet of it disappearing. If this pattern persists, Labour will win the election in 2015 and Ed Miliband will be in Downing Street. Most commentators are perplexed. The recovery from the crash is now finally under way, four years later than expected, and there is good news almost every week; inflation is falling, unemployment is down, and growth forecasts are being revised upwards. The Government is loudly proclaiming vindication for its strategy of austerity and retrenchment. An improving economy is normally associated with increasing optimism among voters about their own financial situation and that of the economy, and greater willingness to vote for the Government. But the polls are not moving.

The Conservatives have also been busy creating clear dividing lines between themselves and Labour, setting traps for their opponents on the deficit, on welfare, on immigration, and on Europe. On all of these issues the Conservatives are more aligned with public opinion than is Labour, which has been forced on to the defensive and has failed to develop policies which are either clear or popular. When to this is added the greater resources of the Conservative party, the strident partisanship of a tabloid press which is strongly pro-Conservative and anti-Labour, and the consistently negative poll ratings of Ed Miliband as Labour leader, it is easy to see why many think Labour is a lost cause. The Conservatives have a winning hand and will surge past Labour in the run-up to the election and win a decisive majority. On this reading of British politics Labour has lost the political argument, and lost the political initiative. It is going down to a second defeat.

Except that is not what the polls are saying. Labour remains for the moment comfortably ahead, and nothing seems to dent its lead. There are several possible explanations for this. One is that Miliband’s personal ratings do not matter as much as many think. All the leaders have negative ratings. Nick Clegg is at – 50, Miliband – 30, and Cameron – 20. That still means that in the comparison between Miliband and Cameron as preferred Prime Minister, Cameron wins, and there is still a barrage of negative campaigning to come. But the Tories do not have an overwhelming advantage. The contest between the party leaders is a contest in unpopularity. Trust in politicians and their ability to deliver what they promise remains low in Britain. Negative ratings are clearly a handicap in an election in which there will be so much focus on the personalities of the leaders, but they will only be one of many reasons why votes are cast.

A second explanation is that Labour has begun to perform better and is making more impact on voters. Since Miliband’s Autumn conference speech in which he announced his plan to freeze domestic energy prices for fifteen months if Labour won the election, Labour has managed to dominate the agenda with its message that despite economic recovery there is a cost of living crisis, and most workers are suffering real wage cuts every year, because wages are rising more slowly than inflation. Asset prices have been protected by quantitative easing, and the average share portfolio has increased by 25 per cent in the last four years. But real wages have fallen, so few people are feeling better off. Miliband’s proposals on energy, and his more recent proposals on splitting up the retail banks, have attracted a lot of scepticism from commentators, experts, and interest groups, but the polls show that they are popular with voters. Some of the pledges may well be hard to implement in government, but Labour has begun to stake out new ground and prevent the Conservatives from dominating the agenda as they have been doing during the last three and a half years. Labour still does not excite much popular enthusiasm, and it is still struggling to regain its reputation for economic competence. But it has begun to do better.

Yet it is hardly doing well enough to explain its poll lead. Both the Conservatives and the Liberal Democrats may be seriously unpopular, but Labour is not far behind them. There has been no great surge of hope and confidence on the Left. One explanation therefore of Labour’s continuing poll lead is that it is due to the failings and divisions among their opponents rather than because of Labour’s positive appeal. Support for the Conservatives is fragile. They have not won a general election outright or polled over 40 per cent of the vote since 1992. They have tried since 2005 to broaden their appeal but have only partially succeeded. There are still parts of the country where voters who have deserted the Conservatives show no sign of returning. The modernisers in the party complain that the modernisation project has stalled and that in some policies the party has started going backwards, alienating the voters it needs to secure a majority. But the Right complains that the reason the modernisation project has stalled is because it has lost the party many of its core voters to UKIP. At the 2010 election UKIP had only 3 per cent of the vote. Its share of the vote over the last two years has been above 10 per cent, and in some by-elections and local elections much higher. It is expected to do well in the European Parliament elections in May. UKIP is increasingly taking voters from Labour, but the polling evidence shows that the majority of its support comes from the Conservatives. It is the loss of Conservative defectors to UKIP which, as Lord Ashcroft’s polling shows, is the biggest single obstacle to an outright Conservative victory at the next election. The party is now doing everything it can to win these Conservatives back, by banging on about Europe, immigration, and crime in the way modernisers deplore. But it is seen as the only way to put UKIP back in its bottle. If it fails it is hard to see how the Conservatives can win a majority at the next election.

All of this makes the next election extremely open and difficult to call. It may well turn into a four party contest as far as England is concerned, and given the vagaries of the first past the post electoral system, the outcome in many seats will be very uncertain, since it will increase the number won by very small majorities and minority votes. If both UKIP and the Liberal Democrats maintain their present level of support, no party is likely to win an overall majority, certainly not the Conservatives, who have the added disadvantage of the bias in the electoral system. Measures to reduce it were blocked by the Liberal Democrats when the Conservatives failed to deliver on Lords reform.

The Conservatives are waiting for politics to return to normal, with the support for third and fourth parties shrinking as the election approaches, and the improving economy brings their defectors back to the fold. They are confident that in a straight fight with Labour they will win. But just as the economy did not behave as expected after the financial crash, neither is the political system behaving as expected now. The kippers are on the march, and there is a sizeable body of Conservative MPs who sympathise with them, particularly on their call to withdraw from the European Union, and to impose much more stringent immigration controls. The disaffection of Conservative voters is proving hard to reverse, because the Conservatives cannot outbid UKIP in its populist stances on either the EU or immigration. Short of backing withdrawal from the European Union, and freezing all immigration, the Government can never satisfy UKIP demands. But unless they can find a way to reduce UKIP’s appeal in the next sixteen months, they will struggle at the next election.

Solving the productivity puzzle

In recent days, there has been much “I told you so” in the air. The IMF has revised its forecast for growth in the UK, predicting that the British economy will grow more than it had expected in earlier forecasts. The French chief economist at the IMF, Olivier Blanchard, had raised something of a storm in the UK earlier this year when he criticized the government’s austerity drive. Now that the UK appears to be growing more than expected, the British Chancellor George Osborne feels vindicated.

This squabbling over numbers points us to one of the problems with the austerity debate as it stands. Much of it has rested on forecasts and estimates. Projections of growth trends and government revenues three or four years down the line are notoriously difficult and yet both sides of the debate have claimed that their estimates make the most sense.  

This focus on numbers is particularly problematic in the UK as it detracts from the main issue. Newspaper headlines and public debate tend to focus on interest rate movements, the UK’s government-fuelled housing price bubble, the revision of growth forecasts that we have seen in recent days. What is not being discussed is the real mystery in the UK since the beginning of the crisis: the marked dip in productivity. Writing in the Financial Times, Chris Giles rightly points out that being so focused on the ups and downs of fiscal policy has meant we have missed the big issue of the UK’s productivity puzzle. Looking back at forecasts made in 2008, the main finding is that growth is much lower and inflation higher than was predicted.

 According to Giles, this tells us that the main problem in the UK is not a lack of demand due to austerity policies. Rather, “it suggests that something has gone wrong with the supply of goods and services in Britain” – this is what economists are calling the productivity puzzle and few have any explanations for it. Steve Nickell, a member of the UK’s Office for Budget Responsibility committee, recently admitted that whilst there are many theories about this puzzle, there is still no coherent explanation for it (FT, 10/10/13).

One idea (see Charles Goodhardt’s article here) is that if employment is held roughly constant, then falls in demand will lead to falls in output, which will then depress productivity. Logically this holds: if the same number of people are producing fewer things, then their productivity (output per worker) will fall. Compared with previous recessions in the UK (early 1980s and early 1990s), employment has held up well. We have not seen the collapse in manufacturing employment that we saw in the early 1980s, for instance, which had the effect of boosting productivity. A feature of the 2008-2013 downturn in the UK has therefore been the protection of manufacturing capacity and the avoidance of massive liquidation and bankruptcies. The result has been a fall in productivity. In other countries, like Spain, where unemployment has mushroomed, productivity has risen noticeably. Why this job-rich recession in the UK? And what about other countries like Germany, who have also managed to hold up employment? Has productivity fallen there too?

Goodhart’s is one explanation amongst many others and it may not convince everyone. After all, unemployment in the UK rose from just over 5% in 2008 to 8% in 2010. Isn’t that enough to keep up productivity levels? If not, then how much is enough? Compared to the petty points scoring of Osborne and co, though, and the fixation on forecasts and projections that has characterized both sides of the austerity debate, this is what we should really be thinking about.

Fiscal rules and election campaigns

As the UK Labour Party’s annual conference kicks off this week, ideas are beginning to emerge about what Labour will offer in the run up to the 2015 general election. One of these ideas is to have the country’s independent budgetary body, the Office for Budget Responsibility (OBR), to audit all of the pledges made by Labour in its election manifesto. Assuming that Labour’s tax and spend plans are found to be consistent with budgetary discipline and pledges on meeting deficit and public debt targets, the OBR would thus bolster Labour’s claims to responsibility and sound fiscal management.

This idea is nothing new for the Labour party. When Tony Blair carried his party to victory in 1997, he had promised to match Tory party spending commitments. This pledge had been intended to bury the long-standing image of the Labour party as a motley crew of profligate leftwingers. Over time, we have seen fiscal policy steadily depoliticized through the creation of fiscal councils and various fiscal rules, a development supported by the Left and the Right. The IMF estimated in 2009 that 80 countries in the world have adopted a fiscal rule of one kind of another. Debt brakes have been inscribed into constitutions in Germany and in Switzerland. In the UK, the OBR was created in order that government be made accountable to an independent body for its public spending. Elsewhere, fiscal councils with varying powers have become a common feature of the macro-economic policymaking landscape, as the table below highlights.

Fiscal Councils

Austria	Government Debt Committee (1997)
Belgium	High Council of Finance (1989)
Canada	Parliamentary Budget Office (2008)
Denmark	Economic Council (1962)
Germany	Council of Economic Experts (1962)
Hungary	Fiscal Council (2008)*
Netherlands	Central Planning Bureau (1947)
Slovenia	Fiscal Council (2010)
Sweden	Fiscal Policy Council (2007)
United Kingdom	Office for Budget Responsibility (2010)
United States	Congressional Budget Office (1975)

* Hungary’s fiscal council was dismantled in 2010

The European Union as a whole is organized around a set of budgetary rules that are policed and monitored by the European Commission, the so-called Fiscal Compact of 2012.  Monetary and fiscal policy are slowly starting to look alike as both policy areas come under the oversight of independent bodies of experts.

The idea of the British Labour party to submit manifesto promises to an independent audit takes this idea one step further. The message is clear: a promise made about spending by politicians is only credible if it has been overseen by a body of experts. Credibility and responsibility lies with apolitical bodies. Politics, itself, is the terrain of half-truths and misleading creative accounting.

One problem with this is the idea that once a policy has been given the stamp of approval by a body of experts, it becomes incontestable. Especially in the realm of fiscal policy, this is nonsense. Spending plans are notoriously subject to revision and change because they rest upon assumptions about the wider economy. Small changes in growth projections throw even the most carefully prepared and audited spending plans into disarray. That a party’s manifesto commitments are given the all clear by the OBR tells us little about what a party will do once in government. The OBR itself operates according to a set of assumptions about the maco-economy that are constantly subject to revision and change.

Another problem is that parties and governments that rely on monetary and fiscal rules set by independent bodies are in effect out-sourcing responsibility to these agencies. At the same time, these agencies – fiscal councils, central banks – only operate according to strict mandates set by politicians. The result is that neither the politicians nor the agencies accept the responsibility of making choices that are not right or wrong in any objective sense, but are based rather on what one believes is the right thing to do. This leaves us with a vacuum at the heart of politics. Ed Balls’ idea of auditing his campaign pledges brings that vacuum into the election campaign itself. Far from being a moment where rules are challenged and redrawn, the 2015 campaign risks becoming subject to the same rules and constraints that govern everyday politics today.

A word of advice to Ed Balls? It’s not because the OBR has given your policies the all-clear that voters will trust you. That will only come from building a direct relationship with them and engaging with them as citzens.

The political economy of Brixit

At the end of this week, David Cameron will deliver “the speech”: his much talked-about and endlessly-put-off speech on the place of the United Kingdom in the European Union. Choosing to give the speech abroad, in the Netherlands, Cameron is hoping to gain the gravitas of earlier famous speeches on Europe, like Thatcher’s in Bruges in 1988. After so much feverish speculation, the speech will probably disappoint. But it does raise the question of what exactly is going on with the UK and its relations with the EU. Is “Brixit” really likely? Does anyone actually want it to happen? Or is the debate only really about a more cosmetic recalibration of the UK’s membership of the EU?

The Current Moment has previously argued that were “Brixit” to occur, it would be rather in the manner of the “accidental divorce” of Slovakia and the Czech Republic: a curious historical event, where neither side was virulently separatist but a split occurred nonetheless. But how likely is “Brixit”? The Current Moment also suggested that it was unlikely given how implicated the UK is in the EU. The country is far more of a member state than its political leaders admit and finds itself active in the policymaking process even in areas where it has formally opted out.

Even if the UK doesn’t leave, current events still need to be explained. Why this particularly awkward relationship to the EU? Why the prominence of Eurosceptic movements like UKIP and the political classes’ fixation – above all on the Tory side – with reclaiming power back from the EU? Some of the explanation is historical: the UK joined later than many other members after having been rebuffed twice by Charles de Gaulle and made itself unpopular by trying to renegotiate its membership immediately upon entering. Thatcher’s long-standing battles against the European Commission no doubt left scars on both sides. But these explanations are too dated to have much purchase on events in recent years and they don’t explain the climate within the UK and the virulent anti-Europeanism of some its political class that is pushing a rather neutral David Cameron in the direction of “Brixit”.

One powerful argument is that the British establishment, and its political class in particular, does not need Europe in the same was as others do in the rest of Europe. There are various economic ties between the UK and Europe that make the case for EU membership rather strong, as Lord Heseltine and others have argued recently. But the political economy of UK membership in the EU is somewhat distinctive from other member states. In short, the UK has managed its transition away from postwar social democracy on its own, without too much reliance on the EU. Compare Thatcher and Mitterrand. At exactly the same time as the British police were – on Thatcher’s orders – fighting pitched battles against the trade unions, Mitterrand was undertaking his own retreat from Keynesianism via the European backdoor. Rather than take on the militant elements of the French working class directly, Mitterrand preferred to rely on European agreements as a way of slowly and partially dismantling the mixed economy model of postwar capitalism. Thatcher attacked the public sector directly, Mitterrand – and Kohl – did so indirectly via European directives. The same holds true for other countries – like the Netherlands, Belgium and Denmark – where old corporatist models of national capitalism were slowly reformed and wound down via a reliance on European agreements. From the Maastricht Treaty to the Lisbon Agenda to the present day Fiscal Pact, the management of socio-economic change across European societies has been conducted collectively at the European level. In the more extreme cases, like Italy, the vast swathe of the political class believes that macro-economic stability can only be achieved if the country is bound up tightly within a set of European rules. The Euro – with its Stability and Growth Pact and now with the new rules being introduced – was the apotheosis of this particular approach to governing national societies.

In contrast to all of this, Britain has generally managed the transition alone. Its own way of dismantling the postwar social contract was to isolate decision-making power from the authority of the national legislature. Politicians gave up powers to independent bodies, from the multiple national regulatory agencies to the Central Bank and the Office of Budgetary Responsibility. Decision-making was located outside of politics, but not outside of the UK as such.

For this reason, the British political class needs the EU and Brussels much less in the governing of British society. The EU is less tied up with the transformations of British capitalism than it is the transformations of national capitalisms on the continent. That leaves the door open to all the parochialism and xenophobia that animates the British political debate on the EU. This also makes it possible, though still unlikely, that the UK would leave the EU.

On politics and finance

Buried under the frenzy around the Leveson report was the British government’s coup of attracting Mark Carney, governor of the Canadian Central Bank, to London. Apparently ruled out of the running, much to the chagrin of those who felt he was the best man for the job, Carney has now been appointed as governor of the Bank of England and will take up the job next summer. For those who view these appointments as purely about expertise and experience, this is a great victory. Gone it would seem are the mercantilist days where nationality, wealth and government policy were so closely aligned. The cosmopolitan financial press, from the Financial Times to The Economist, are satisfied. Britain, it seems, is a pioneer in these international recruitments for national institutions: think of the English football team. That Carey was a Canadian certainly helped make him acceptable to the British establishment. He’s sort of one of us, after all, runs the sentiment. But the principle still stands that positions such as these are all about competence and expertise. There is no politics or partisanship here and the appointment of Carney, we are told, is proof of that.

It is also proof of a number of other things. One is that there is emerging a cadre of elite central bankers who move relatively seamlessly from one appointment to another. National boundaries seem less restrictive than in the past. This holds true to some degree at the global level, where competition for posts such as head of the IMF or the World Bank has become more intense. The old Bretton Woods division of the spoils between Europe and the United States is coming under serious pressure and may not survive the next round of appointments. And nationally, central banks are opening up with Britain leading the way. Curiously, the European Central Bank in this regard is behind the times: its appointments are rigidly based upon the principle of achieving balance between nationalities. The unfortunate Lorenzo Bini Smaghi was edged out of the ECB executive board because it wouldn’t do to have two Italians in there and no Frenchman. Draghi became director, Smaghi was out, and Benoit Coeuré was in. This seems rather old hat and overly political compared to the forward looking Bank of England. Whether other central banks follow Threadneedle Street’s example is unclear but the principle has been established and there is no short supply of expert central bankers.

It is also proof that the way we understand banking, finance and monetary policy today is entirely free of political principle. The struggle between banking and financial interests and those of elected representatives is a long-standing and epic struggle. There is nothing new there. But central banks have often been seen as exceptions. They are, after all, lenders of last resort and in that respect are eminently political institutions. Those critical of the ECB in the current crisis have often suggested that it’s role should become more, not less, political in so far as it needs to act in order to save the Eurozone from collapse. Yet the implication of Carney’s arrival is that the tie between central banks and national politics should be cut. This is a mistake. Carney may be Canadian but the Bank of England remains firmly part of the functioning and survival of the British economy. And the Bank of England should still be understood as an agent of national capital, in spite of who is running it.

Carney’s appointment also chimes with a more general feeling that politics is seeping out of macro-economic policy as a whole. Illustrative in this regard is the debate underway at the moment around who might replace Tim Geithner as US Treasury Secretary. One name that has been floated around, and who the FT considers a realistic outside contender, is Larry Fink. As head of the biggest asset management group in the world (BlackRock manages around 3.7 trillion US dollars of assets), Fink is a heavy-weight figure, as important as those running the big Wall Street banks. However, his entire background is in finance. He certainly has views about how the US economy should be run but to appoint Fink would be to give the job to an expert. And this is not a job as central banker but as Treasury Secretary, an ostensibly political appointment. Of course, experts have long been appointment to this position. There is even talk of Geithner stepping down and joining BlackRock and Fink moving in to take his place. Were this to happen, it would illustrate how firmly financiers dominate economic policymaking and how expertise in finance has become the baseline for political appointments within the US Treasury.

As we’ve argued before on this blog, expertise does matter in politics. But the overwhelming tendency today is to view macro-economic policy as a purely technical realm, rather than as one where technical questions co-exist alongside fundamental differences of political principle and alongside important moral questions. Such a tendency has the effect of shielding economic policy from public criticism and gives to public financial institutions like central banks a veneer of political and social neutrality. In fact, no amount of expert knowledge can obviate the need to make political choices. The most honest experts will say that various scenarios are possible and that the choices depend upon what outcomes we want. It is these outcomes that we should be debating, not which expert can magically solve our ethical and political dilemmas about what sort of society we want to live in.

Still no alternative to austerity

An interesting post on austerity over at the Economist’s Free Exchange blog. It makes the point that British business – generally in favour of austerity measures when they were first introduced back in 2010 – is now beginning to change its mind. It’s not difficult to work out why: Britain is facing a third quarterly decline in GDP, with a 0.5% contraction in the British economy expected for the second quarter of 2012. For the UK this is particularly galling given the fiscal boost of the Olympics and the expectation that this would mean a heady summer for at least some British businesses. Perhaps it is true that as many people left the UK as entered it for the Games, making the net effect close to zero.

The Economist’s post suggests that the tide is perhaps turning in the UK, with austerity giving way to a new consensus around pro-growth measures. It notes that Cameron’s government is considering an “economic regeneration bill” for the Autumn and that Boris Johnson – with an eye perhaps on the Tory leadership – is talking up the need for big government infrastructure projects (based around London, of course).

The difficulties faced by the UK economy should give food for thought to those arguing that the route to economic growth lies via an exit from the Eurozone. One might have expected the UK to boost competitiveness through cheapening its currency but – on the contrary – the British pound has become something of a safe haven for those with lots of cash. Life outside the Eurozone may mean currency flexibility and low borrowing costs but that isn’t helping the British economy. The debt burden for individuals and businesses, incurred in the heady pre-2008 years, is still depressing growth and holding back new investment plans.

The idea that the tide is turning at the level of elite opinion is difficult to substantiate. There were always voices calling for moderate fiscal stimulus alongside cuts in government spending. Back in 2010 the debate between the Tories and Labour was not about whether the government should drastically reduce spending – both agreed that it should – but it was all about timing. Shock treatment versus gradual reductions eased along via some discretionary spending. Austerity was the backdrop with the debate focused on how, not if. Little, it seems, has changed.

As noted on The Current Moment last week, the debate in the US presidential campaign is also about how the government’s deficit can be reduced, with both camps fighting over who is more credible in their deficit-cutting plans. In France, a government was elected with an ostensibly pro-growth agenda. In his campaign speeches, Hollande regularly fulminated against austerity politics, claiming he represented an alternative. And yet – bar the few measures introduced that are intended to put a little more money in people’s pockets – the real challenge for the Hollande government is the 2013 budget and finding the money to meet its balanced budget obligations. Much to the chagrin of the left of the Socialist Party, Hollande has signed off on the EU’s fiscal compact with little regard for the growth measures he had promised. Budget cuts will be financed in part via higher taxes but also via spending cuts. The Greek premier, Antonis Samara, is about to undertake a desperate trip to Paris and Berlin where he will ask for a bit more leeway in his efforts at balancing the Greek deficit. Merkel and Hollande are shifting all responsibility for the decision on whether to grant Greece an extension to the Troika, as if the issue was a technical one to be decided by accountants from the European Commission. From the US through to Europe, there is little evidence that the tide is turning.

Even though economies are stagnating under the burden of austerity measures, the intellectual case for an alternative still needs to made. Until then, it will be more of the same.

Stat of the day

In an otherwise curious article critiquing traditional Keynesian policies, British peer – and Labour guru – Maurice Glasman writes that:

“Of the £1.3 trillion lent by banks in the British economy between 1997 and 2007, 84% was in mortgages and financial services”.

This clearly suggests a change in the function of the banking system in the UK: rather than lending in ways that contribute to large-scale capital and labour intensive projects, it has been the facilitator of a debt-dependent growth model.

In From The Cold

Over the weekend, the Financial Times reported on a story about a deal between the UK and European officials intended to bring the UK back in from the cold after the row over the fiscal pact late last year. This row had left the UK isolated with many accusing Cameron of sacrificing the UK’s relationship with the EU in order to defend his friends in the City of London.

As we argued then, the idea that continental Europe had finally liberated itself from the neoliberal anti-regulationist shackles of London finance was greatly over-done. This sentiment was a mixed bag of Euro-chauvinism and some false hopes placed in the socially progressive potential of the Sarkozy-Merkel alternative. However, what was striking was Cameron’s apparent willingness to alienate all his European peers. His break with the consensus was exactly the kind of actions that the EU is meant to guard against: as Perry Anderson has put it, in the EU any such kind of public disagreement is considered a serious breach of etiquette.

This is what makes the FT’s weekend story interesting. It reports that British and European officials discussed the possibility of swapping the portfolios of European Commissioners, bringing the Frenchman Michael Barnier over to foreign affairs and putting Baronness Ashton in Barnier’s place as Commissioner for the Internal Market. Barnier and Ashton would thus swap places in order that Cameron can reassure the City that at the person responsible for financial regulation in Brussels is the reasonable and compliant Cathy Ashton, and not the hard-headed Paris-backed Mr Barnier.

This story is good evidence of what has already been commented on at the Current Moment: the desire of the EU’s member states to remain part of the club, almost at any cost. Cameron was willing to have a public fight but his officials then worked behind the scenes to see what arrangement could be found. This desire to avoid exclusion has driven much of the UK’s policy towards the EU for some time: public protestations matched by private assurances and continued close relationships between officials and experts. This also tells us something about the nature of the Commission’s portfolios: rather than being themselves political offices, they are instead titles that can be traded in order to fashion a deal. As the FT put it, British officials were reportedly “handed Barnier’s head on a plate” by Commission officials hoping to bring Cameron round on the fiscal treaty.

The fiscal pact has been ratified in the absence of the British. But further down the line we will see the British government somehow assimilated into the European policy process and able to work the rules round so that they can accommodate British interests. That is the proper etiquette of the EU.

The limits of Vickers

To much fanfare in the British media, the Independent Commission on Banking, chaired by Sir John Vickers, published its final report this month. Its interim report, published in April, had already attracted a great deal of attention and debate. This last report would – according to the BBC’s ever-excitable business editor, Robert Peston – be “hated” by British banks and promised to be “possibly” the most radical shake-up of banking in the UK ever undertaken.

Some of the proposals in the report seem sensible and are improvements on the status quo. The main thrust of the report is about how to avoid UK taxpayers having to cover the cost of another financial crisis. By ring-fencing the retail part of a bank’s business, its investment activities are no longer meant to enjoy an implicit government subsidy (the result of bankers knowing that in a crisis the government will save the bank in order to protect savers). This would make it more expensive for banks to engage in investment banking activities but the Vickers-led commission rightly responded that this is only a case of making banks pay for the risks they are taking.

A few problems stand-out though, all to do with the role banking plays in the contemporary national and international economy. The idea of ring-fencing – which is a watered-down version of the more radical idea of dividing up banks entirely, investment banks on one side and retail banks on the other – might make some sense in theory but in practice it is difficult to see whether it would actually fundamentally change the way the government acts in a crisis. The investment arm of a bank might be expected to take a loss in line with its risky behaviour up to a point. But what if this would threaten the survival of a major British firm, dependent upon financing from a shaky investment bank? What if more than one major firm was threatened? Would the government not be obliged to intervene as before? The idea of ring-fencing rests upon the idea that investment banking exists in one sphere, the “real”, i.e. non-financial, economy in another. This is simply not true.

Another problem is that the report invests too much importance into identifying an ideal structure for the City of London. This suggests that if the institutional rules are the right ones, we will be free from future crises. Or, at the very least, the consequences of future crises will be severely constrained, unable to spill onto the innocent paving of Main Street. But there is little evidence to suggest that the structure of banking industries is the crucial variable in the ongoing financial and economic crisis. Today, debate rages around part-nationalization of French banks as shares of big French banks plummet. And yet French banking is different in many ways from the British banking industry. The smaller and regional Spanish cajas are also in great trouble today, with many suggesting they should be consolidated into a smaller number of bigger players, a move that would make Spain look more like… Britain. The issue doesn’t seem to be the structure of the industry as such but rather something deeper. To focus on banking reform is to present the structure of the banking industry as a main cause of the present difficulties and of the 2008 financial meltdown. Events since 2008 suggest that it is less cause than consequence.

A really radical move would be to trace in detail the causes of the 2008 crisis and the current global economic slow-down, situating the role of the banks within a broader study of a financialized global economy.