By Bright, Martin
New Statesman (1996) , Vol. 137, No. 4919
Credit where credit is due--and you have to say that a [pounds sterling]37bn injection of cash into high-street banks is one shedload of credit--Gordon Brown has had a good autumn. There is a year between Brown's darkest night as Prime Minister when he called off "the election that never was" (Friday 5 October 2007) and the announcement of the government's part-nationalisation of the banking system (Wednesday 8 October 2008). When students of history come to study this period, which of these momentous events will define this government's legacy? Which, if either, of these decisions was wise?
The conventional wisdom may turn out to be wrong in both cases. It is by no means settled that Brown was wrong to cancel the election. What if Labour had scraped home in a snap election last November? Would a hobbled government working with a reduced majority have been better placed to deal with the present economic situation? And, there was the real prospect that David Cameron's novices might have ended up in charge during the credit crunch, an even scarier prospect.
Will the bank bailout prove to be the correct decision? It was right, morally, to protect the general public from the ravages of the credit crunch by shoring up the institutions that hold their savings. But there is no guarantee that the measures to "recapitalise" the banks, announced on 13 October, will work in the long term. At his press conference, Brown was uncompromising in his criticism of market speculators, a point he pushed home when speaking to City figures later in the day, saying there should be no "unfair incentives for irresponsibility or excessive risk-taking for which the rest of us have to pay". But there has been little talk from the Prime Minister or the Chancellor about the consequences politicians should face for the risks they have taken with our money.
To be fair, they haven't often been asked. When the question was put directly to Brown at his Thomson Reuters lecture to the City, he answered in the only way he could: ultimately he has to bear responsibility.
The Prime Minister insists we should look on the billions being spent on the banks not as debt, but as an investment in essentially robust institutions. Almost everyone, from Labour's hard left to the City, is united in their support for the measures, but it is hard to imagine being persuaded by such an investment in any other circumstances.
"It's like this," says your friendly government financial adviser. "We want you to put [pounds sterling]37bn, that's almost three times the budget for primary schools, into these institutions. We admit they have already been extremely irresponsible with their customers' money and that the management of these banks is seriously flawed and their top -heavy bonus system is a scandal. We have been slow to introduce the necessary safeguards to stop them gambling away your hard-earned cash and we cannot guarantee a good return. But, despite what you may have heard recently, shares do go up as well as down."
Already, the Prime Minister has stated there now needs to be a "second wave" of measures to shore up the system with far-reaching reforms to ensure that nothing like this happens again. As we go to press, Brown is telling EU leaders in Brussels that there should be a thorough overhaul of the international banking system, which would include increased transparency, an end to the culture of speculative incentives and reform of the International Monetary Fund.
Gordon Brown's reinvention as a European is one of a series of ironies. Brown has always been determined to win over the Europeans to his "British model" of economic management: that is, the liberalisation of markets, an end to subsidies, an openness to globalisation, increased competition. In short, the Americanisation of the European economies. He has now found his opportunity to lord it over Europe, just as the American model has been shown to fail. …