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Labour disgrace on IMF decision

July 5, 2011

In an astounding display of irresponsible posturing and opportunism the Labour party has just voted against Britain contributing more to the IMF.  The International Monetary Fund is increasing its total pool of reserves in order to stabilise the economies of struggling members.  In a Parliamentary committee this morning to approve an increase in the UK’s contribution, Labour MPs voted against.  The increase was approved by Coalition Government Lib Dem and Tory MPs, including me.

This is an astonishing decision by the Official Opposition in one of the IMF’s founder member states.  This is the organisation that Gordon Brown was apparently keen to head up just a few weeks ago.  Christine Lagarde took the helm today.  When she’s finished her day one induction she might want to pick up the phone to Gordon and ask him what the hell are his colleagues playing at?

Labour have very little economic credibility in this Parliament.  They oppose tax rises.  They oppose cuts. They oppose welfare and pensions reform.  They’ve even opposed measures to tackle tax avoidance!  They’re against everything that the Coalition is doing to clear up the horrendous mess that Labour (with a lot of help from some bankers) left behind.  But they have been clinging to one claim that had some credibility to it – that in 2009 Gordon Brown worked in concert with other world leaders to stop an international economic collapse. Indeed it was at the G20 London summit presided over by Brown that it was agreed the IMF needed to increase its fund by roughly $250 billion in order to stabilise the world economy over the next decade.  By their actions today Labour have now destroyed the fig leaf of credibility they still wore.

So what was decided today?  The IMF member states (187 of them, roughly the same as the UN) each subscribe a proportion of their own government reserves to the IMF, denominated in Special Drawing Rights (SDRs) which is a weighted average of the £, $, € and Y.  Each member has a quota.   The current total quota for all members is 238.4 billion SDRs.  As agreed in London in April 2009 and again by the G20 in November 2010 the total will double to 476.8 billion SDRs.   Until today the UK quota was SDR 10.738 B (roughly £10.54B) but after this morning’s vote it will increase to SDR 20.155B (roughly £19.77 billion), actually a slight fall in our share from 4.5% t0 4.3% of the total fund.  Some emerging economies are increasing their share.

The IMF has acted to stabilise many economies over the years, including the UK in 1976.  Often the package of fiscal austerity and reform that accompanies an IMF loan is controversial.  Currently the main recipients of IMF assistance are Ukraine, Romania, Hungary and Greece.  The latter are fellow member states of the European Union and Greece is also within the Euro currency zone.  And this is where my Conservative coalition partners have their own internal difficulties.

The current Conservative group of MPs are the most Euro-sceptic ever.  But the Coalition Government is performing a constructive role on the international stage, including in the EU.  Many Tory MPs hate this fact.  Some of them seem to want the € to collapse and openly advocate a Greek withdrawal from the single currency.  In a Commons debate on the bail outs of Ireland, Portugal and Greece a few weeks ago I was just about the only Coalition MP to speak in favour of Britain’s participation.

This morning a gaggle of Tory Eurosceptic MPs turned up to speak (they were not voting members of the committee) against further help for Greece from the IMF.  One of them, Douglas Carswell, did at least come up with a great phrase “this must be the only bail out in history where you ladle more water into the boat.”  I’ve always got on well with Douglas and you can read his take on things here http://www.talkcarswell.com/ but I believe that Greece will need more assistance to help it through the austerity package agreed by Greek MPs last week.

But I’m more disturbed today by the actions of Labour.  The party has flip-flopped several times over the decades on its attitude to European integration.  But since 1945 it has been consistently (well apart from a mad period under Foot) in favour of international cooperation among the transatlantic democracies.  Britain became of founder member of the World Bank, the IMF and NATO under Attlee’s government and economic growth and peace have followed.  Labour often cite Aneurin Bevan and the creation of the NHS as their proudest legacy of the 1945 government.  But Ernest Bevin, the other titan of that administration must be turning in his grave at the sight of the pathetic spectacle of today’s Labour leadership pulling up the economic drawbridge.

14 Comments leave one →
  1. July 5, 2011 2:47 pm

    Bit rich coming from a Lib Dem this. All you did for years was oppose everything and make promises you could never keep. Still, hypocrisy, from a Lib Dem, whoddathunkit? In case you hadn’t noticed, in terms of economic credibility, your austerity measures are tanking the economy.

    What an utter joke.

    Also, are you so ashamed of your party that you can’t even use your party colours in your blog?

  2. July 5, 2011 3:15 pm

    Greece has a problem, it has accumulated far more debt than it can possibly support and its economy is drowning under the burden. In this it is not alone – only slight;y ahead of the pack.

    So far so agreed I imagine. But what you don’t explain how it is that taking on even more debt can possibly help Greece (or the rest) sort out their problem of, err, excessive debt. What the IMF, ECB et al are doing are kicking the can down the road. Do they hope something unspecified will turn up and rescue the situation? I very much doubt it. I haven’t read a single serious independent financially-literate observer arguing that Greece can avoid eventual default.

    So why engage in a futile bail out that will lead to an even bigger and more damaging problem when the even bigger debt mountain eventually collapses?

    The answer is that that a Greek default woud trigger huge losses for many banks in Europe, the UK and the USA. Many, including household name banks, would be exposed as insolvent having made foolish investments. The only salvation for these banks is to pursuade governments and international institutions like the IMF to take on their bad debt by refinancing Greece at the public expense.

    It’s symptomatic of the extent to which we have slipped into crony capitalism and plays the cronies’ favourite game – nationalising the losses, privatising the profits.

    How this is liberal beats me.

    • July 5, 2011 10:00 pm

      it’s liberal because taking an international rather than selfish/insular approach is the right thing to do. The IMF exists to enable world economic stability. A Greek default is not in our interests. The IMF bail out helps the Greek govt make the necessary changes to its domestic budget.

  3. Toby Fenwick permalink
    July 5, 2011 9:08 pm

    Interesting post, Stephen, thank-you. Did Labour even have a credible excuse – e.g. that there was insufficient rebalancing of SDRs to provide IMF voice for the G77? (Not that I agree with “voice” per se.)

    I do agree with Carswell on Greece, however; Greece is broke and more debt is most unlikely to remedy this. A sensible, controlled restructuring now will be less painful than a an uncontrolled default later; under either scenario, Greece seems likely to have several painful years ahead.

    • July 5, 2011 10:05 pm

      fair points, though not many people realise that the Greek budget deficit is LOWER than the UK’s. But we have a triple A bond rating while they have triple C. The difference is largely down to fiscal credibility. Our Coalition has a plan for tackling our problems, the Greeks have avoided theirs for too long. Douglas and his fellow Tory Euro-sceptics argue for Greece to leave the Euro and devalue. Bad economics in the long run as it will just cover up the need to deal with structural problems and also increase the cost of imports (just as our devalued pound is injecting inflation into our economy…)

  4. lyndaphillips2 permalink
    July 5, 2011 10:23 pm

    No disrespect Stephen but I think you need a reality check.

  5. Paul Bemmy Down permalink
    July 6, 2011 8:17 am

    Nomatter how valid your arguements, out here in the real World, people are sick to death with “bail outs” of countries who live beyond their means,( a bit like we did) but do nothing to help themselves, retire before us, have a casual approach to paying tax and pay themselves too much. Were victims of a corrupt system that broke its’ own rules to allow them to join a club to which they were not ready, although most other members were breaking the rules as well. A club where the “great and the good” made themselves personally very rich and continue to do so, whilst the rest of us struggle. Where expansion would provide new markets for our exports, but most of those exports turned out to be our jobs and where the new countries had little money to buy the few goods we make in anycase. The Common Market was a good idea. I voted to stay in, the only opportunity that I’v ever had to really express my oppinion. But this is a long way from the CM. If the Lib/Dems get more votes than Ukip at the next election I shall be amazed!

    • July 6, 2011 9:42 am

      Paul – I agree with you that the Greeks (and several other countries) have persistently failed to reform. They are now paying a heavy price. The bail out is a loan, not a gift – the IMF always gets its money back. But the loan will help with the transition. It is not in our interests to stand back and watch a European neighbour go down the pan, taking lots of British investment with it.

  6. July 6, 2011 10:47 am

    Greece has a problem, it has accumulated far more debt than it can possibly support and its economy is drowning under the burden. In this it is not alone – only slightly ahead of the pack.

    So far so agreed I imagine. But what you don’t explain how it is that taking on even more debt can possibly help Greece (or the rest) sort out their problem of, err, excessive debt. What the IMF, ECB et al are doing are kicking the can down the road. Do they hope something unspecified will turn up and rescue the situation? I very much doubt it. I haven’t read a single serious independent financially-literate observer arguing that Greece can avoid eventual default.

    So why engage in a futile bail out that will lead to an even bigger and more damaging problem when the even bigger debt mountain eventually collapses?

    The answer is that that a Greek default woud trigger huge losses for many banks in Europe, the UK and the USA. Many, including household name banks, would be exposed as insolvent having made foolish investments. The only salvation for these banks is to pursuade governments and international institutions like the IMF to take on their bad debt by refinancing Greece at the public expense.

    It’s symptomatic of the extent to which we have slipped into crony capitalism and plays the cronies’ favourite game – nationalising the losses, privatising the profits.

    How this is liberal beats me.

  7. July 6, 2011 10:57 am

    Umm, I think I pressed the wrong button there!

    With respect, you cannot construe the IMF intervention in Greece as ‘liberal’ because it’s ‘international’ rather than selfish/insular.

    Whatever the theory the practice is that the IMF exists to further the sectional interests of the bondholders never mind how foolish they’ve been. As you say it always gets its money back, but how does this additional loan help Greece when they are already drowning in unpayable debt?

    We should respect the democratic wish and judgement of the overwhelming majority of the Greek who see their democracy being trashed to protect the financiers.

    A far better use for our money would be to lend it to Greece when they have sorted out the existing mess to help get them back on their feet. It’s not helping Greece that I’m opposed to – only bailing out financiers via the back door.

  8. Paul Bemmy Down permalink
    July 8, 2011 11:01 am

    Hi Stephen. A letter in the EP today, claims that the “Unelected” put another dent into the wheel of democracy by scuppering a bill to give us a say in any major European changes. How can those good old socialists, the Kinnocks, and Mandelson with their vested interests, possibly be entitled to do this? I’m puzzled. Can you explain please.

  9. July 8, 2011 6:48 pm

    Paul – I’ve just looked at the letter. I can’t tell from it whether it’s actually govt legislation or a general Lords debate. But as I wrote last week on this blog, we really ought to get rid of the Lords and have elected Senators! On Europe, I would personally welcome an “in or out” referendum and would argue for a yes vote to stay in.

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