By Mushtak Parker
Saudi Gazette

LONDON — The specter of thousands of police officers, prison wardens and immigration officers walking out on a 24-hour strike UK-wide Thursday protesting against government austerity policies and changes to their pensions, could not be more stark. Technically police officers and prison staff are not allowed to strike by law. But these are exceptional times.

A noteworthy placard simply read “In Solidarity with Greek Demonstrations and Occupations”. Countrywide, trade unions claimed that 400,000 workers joined the strike which also included civil servants, NHS staff including nurses and paramedics, and lecturers. The Conservative/Liberal Democrat Coalition Government in Britain claimed that the figure was nearer to 150,000.

Events in London come at a time of continued political and economic turmoil which has swept the European Union in recent weeks. Ruling parties on both sides of the political spectrum are reeling because voters have emphatically rejected their economic austerity policies which has so dramatically impacted on the cost of living and their living standards.

In the UK the Coalition government led by Prime Minister David Cameron suffered heavy defeats in the local elections; in Germany, by far the most solid and largest economy in Europe, Chancellor Angela Merkel’s Christian Democrats lost the election in Schleswig Holstein; in Greece the government of Prime Minister Samaras collapsed and subsequent snap elections saw the two mainstream parties PASOK and New Democracy failing to get enough votes to even muster a coalition government; and in France the socialist President-elect Francois Hollande is busy putting together his team and program for economic growth as opposed to the pseudo-austerity policies of his defeated rival Nikolas Sarkozy.

The serious danger is in Athens where three parties have so far failed to form a new government because they are diametrically divided over economic policy — the choice between austerity with volatility or austerity supported by economic growth.

In fact, this is the mantra of economic policy choice emerging in Europe if not the world. And the signs are that this ideological divide will persist for most of this decade, because the indicators are that it will in Europe and the West (in the US President Obama has gone for growth). Europe in general has flatline growth below one percent and high public debt and unemployment; the UK is in double dip recession where inflation yesterday touched 3.5 percent, well above the Bank of England target of 2.5 percent; and both hope and confidence are indeed in short supply.

The irony is that the economic crisis seems to a certain extent rediscovering and redefining political fault lines between the Right and the Left which became so blurred during the ascendancy of unfettered market capitalism over the last three decades or so and which in the last decade mutated into casino capitalism consuming both the traditional Right and the Left.

In both France, Greece (amongst the New Left) and even Germany and the UK, it is the Center Left parties that are championing limited austerity tempered with proactive economic growth policies; while the Right (in cahoots with their political sidekicks such as the Liberal Democrtas in the UK) seem to be ideologically stuck to deficit reduction at any cost. The rationale for the former is that with growth, companies and individuals will be in a position to pay more taxes and therefore the Exchequer would be in a better position to pay off the family debts. The rationale of the latter is that their can be no progress without pain and the country like any consumer family has to balance its books.

The oversimplicity of the analogies betray the complexities of reality in terms of income disparities; lack of a fair distribution of wealth; socio-economic and financial inequalities; the haves and the have nots; and lack of financial inclusion.

The reality is that economic stability is difficult to achieve without a modicum of decent GDP growth, the halcyon and traditional indicator of wealth, especially in the developed countries. In developing countries its is more skewed because several countries in Africa, for instance, are experiencing 5 to 6 percent GDP growth but are no where near as politically and infrastructurally developed as the European countries.

In the Eurozone, the situation is exacerbated by an ill-judged and politically motivated monetary union of economies, of varying sizes, wealth, sophistication and socio-political cultures. This is a recipe for disaster and a warning to other regions of the world mooting monetary and financial union.

At the core of the problem, however, has been the global financial crisis which started way back in 2008 and which resulted in a pernicious and sustained credit crunch, which in turn saw hundreds of small-and-medium-sized enterprises (SMEs) collapse and unemployment going viral.

In Greece, unemployment on Friday reached 24 percent and in Spain it is even higher.

At the same time the banking majors, who precipitated the crisis with their derivative speculation and marketing of financial exuberance through unrestrained lending to hapless retail customers, most of whom would not have been in a position to qualify for such funding under normal circumstances, are laughing all the way to the bank. They do not shudder to lay off thousands of unwanted lower echelon staff and to close offices in their single-minded pursuit of shareholder value and sustaining the salaries and bonuses of the Tier 1 management.

Governments themselves, thinking that the largesse in taxation brought by financial services would be never ending, went on borrowing sprees partly to finance a gravy train of ridiculously high salaries to a motley of self-styled elites ranging from politicians and their shadowy advisers, local government officers, and public servants — all in an effort to keep up with the outrageous salaries in the private sector paid to media executives, corporates of all colors and of course the bankers.

Governments too were beguiled by the financial casuistry as the lines between business and politics became blurred going back to the times of Reagan, Thatcher, Clinton, Blair, Brown and now David Cameron and Nick Clegg. Not surprisingly financial regulation suffered; and the clear blue water between economic conservatism on the one hand and socialism and social democracy on the other hand all but evaporated.
This was not merely an Anglo-Saxon failure but the contagion spread to other financial cultures in the Eurozone countries, where sovereign countries, political ideologues and powerful interest groups conspired to retain the status quo of high salaries, early pension age, low productivity, tax evasion and poor collection.

Reform was difficult, half-hearted, politically motivated and based on ideology rather than the interests of the ordinary citizen, the main casualty of the crisis. Yet the two main precipitators of the crisis — the perpetrators (the bankers) and the enforcers (the regulators), still live in denial blaming market vagaries rather than their own excesses and failure to regulate adequately.

In an extraordinary interview with the BCC last week, the Governor of the Bank of England, Mervyn Rees, the astonishment of many even dismissed any blame for the financial crisis, instead passing the buck to a Daliesque “collective failure of the imagination” and to the Labour Government for taking away the Bank of England’s function to regulate the banks and establishing the Financial Services Authority (FSA) specifically to do that.

“My main point was not to try to blame anyone - this was a failure of the system. With the benefit of hindsight, we should have shouted from the rooftops that a system had been built in which banks were too important to fail, that banks had grown too quickly and borrowed too much, and that so-called ‘light-touch’ regulation hadn’t prevented any of this. Where the mistakes were was in not having enough policy instruments to deal with the imbalance,” he said.
Indeed, one of Governor King’s former colleagues, David Blanchflower, a former member of the Bank of England’s Monetary Policy Committee, accused Sir Mervyn of being “disingenuous.” “If Mervyn King had thought more regulation was important he could’ve done something about it. And because he didn’t he must take responsibility for the fact the Bank of England missed the biggest financial crisis in a century,” he told BBC Radio 5 live.

The Bank of England indeed has form of regulatory failures and refusing to concede any blame. In the 1990s it failed to foresee the collapse of BCCI and the blue chip British private bank, Barings. Its response after the fact however could not have been more different.

It failed to intervene and "save" BCCI even with a generous offer of the then Ruler of Abu Dhabi, Sheikh Zayed, the main shareholder of the bank, to underwrite its losses, stressing that the institution is not salvageable. On the other hand, it approved the takeover of Barings by the Dutch banking group, ING.