Dealing with debt: lessons from abroad

Dealing with debt coverEdited by John Springford
June 2010

The UK’s new coalition government is performing the first incisions in some drastic surgery to the state. The fiscal consolidation, which will take several years, will require a delicate - and highly political - balancing of competing interests, as it entails a transfer of wealth from taxpayers, government workers, welfare recipients, to debt markets, but in a way that prevents any party from walking out on the deal.
Other countries have been here before. 'Dealing with debt: lessons from abroad' brings together four authors, from Canada, Ireland, Sweden, and Australia, to discuss how their governments cut and reshaped the state in recent years, and what social and economic costs and benefits ensued.

 

This publication includes chapters by:
  • David Herle, political advisor to finance minister and prime minister Paul Martin, on the politics of the Canadian cuts of the 1990s
  • Pär Nuder, former Swedish finance minister, on a social democratic consolidation
  • Colm McCarthy, chair of Ireland’s 2009 expenditure review, on dealing with two Irish fiscal crises
  • Chris Aulich, specialist on John Howard’s privatisations and public services reforms, which reshaped the Australian state.
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    Press Coverage:
    The Guardian: Comment is Free, 'The four ways we can cut spending', John Springford, 22 June 2010
    The Observer, 'There is no logic to the brutish cut George Osborne is proposing', Will Hutton, 20 June 2010
    Financial Times, 'Prairie wisdom from Britain's age of austerity', David Herle and John Springford,10 June 2010

    Credit where it's due: making QE work for the real economy


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    Giles Wilkes
    March 2010

    ‘Quantitative easing’ was meant to boost private spending by pumping billions of pounds into the economy. But CentreForum argues that it has done little for ordinary people and businesses. Without serious reform, it will prove powerless in the face of a second dip into recession.

    In early 2009, with interest rates at 0.5 per cent and the deficit hitting record levels, ‘QE’ was the only policy left for fighting the recession. By trying to increase the money supply directly, the Bank of England aimed to increase bank lending, lift up asset prices and restore confidence. In many ways it worked. Banks that were almost insolvent are now recording large profits, the equity market has soared, and house prices have reversed a frightening decline. It has clearly helped the government to issue a huge amount of debt relatively cheaply.

    But while the policy may have prevented financial collapse, it has done little to make life easier for small companies and households. Now, with the real possibility of a second dip into recession, CentreForum argue that QE needs urgently to be redirected towards the thousands of firms up and down the country for whom the ‘credit crunch’ is an ongoing problem.

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    Lost Labours: where now for the liberal Left?

    Lost Labours, John KampfnerJohn Kampner
    March 2010

    In 'Lost labours: where now for the liberal Left?', John Kampfner, journalist, political campaigner and former editor of the New Statesman asks how, after more than a dozen years in office, Labour has done so little to produce a more liberal and egalitarian Britain. Although the hopes vested in Tony Blair were dashed early on, mainly due to the Iraq war, he argues that Gordon Brown could have breathed new life into the project. He concludes that that project has now foundered thanks to a combination of authoritarianism and a lack of political courage.

    John Kampfner has long described himself as a 'Left-liberal'. He argues that the causes he believes in - the quest for greater equality, an enlightened criminal justice policy, environmental protection, civil liberties, an ethical foreign policy and a more pluralist approach to politics - may now have found a stronger home within the Liberal Democrats.

    In 'Lost Labours' he explains why.

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    Media coverage:

    Guardian: Comment is Free: 'Our Clegg-backing letter is one for the grandchildren'

     

     

    A Lib Con Trick?

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    Julian Astle
    March 2010

    The Conservatives have been talking up their chances of doing a deal with the Liberal Democrats if the general election fails to deliver them a majority. Conservative shadow business secretary Ken Clarke has even suggested that “Nick Clegg is a conservative”. David Cameron meanwhile regularly describes himself as a 'liberal' and has claimed that on a range of policy issues, “there’s barely a cigarette paper between us”.

    But according to a new report from CentreForum, the liberal think tank, the two parties’ similarities are being wildly overstated, as are the chances of them working together in a formal coalition if the Tories are returned as the largest party in a hung parliament.

    The paper, entitled 'A Lib Con trick?', points out that although the election of a self-styled ‘liberal Conservative’ as Tory leader should have increased the likelihood of meaningful co-operation between the two parties, so far, that co-operation has been conspicuous by its absence. In part, this is down to a deep rooted mutual mistrust – policy positions may be ever changing, but the culture of a party, and the core instincts of its members, are not. In part, it is a simple result of electoral imperatives – as long as the success of each party depends on the failure of the other, co-operation will prove difficult.

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    Mind the gap: can Europe and the US build a new financial order?

    John Springford
    February 2010 can_europe_build_200.jpg

    Now that the worst of the financial crisis is over, governments are considering how to stop the next one. In the post-Lehman Brothers world, many banks are simply too big to fail, and continue to pose a systemic risk to the economy both home and abroad. The US Congress is currently considering a financial regulation bill, which is likely to pass in the first months of 2010. The European Union is further behind, but also expects to pass legislation next year. The UK, Germany and France are all in the process of reforming national regulation, in an attempt to reduce the risks that individual institutions impose to the financial system.

    In its new report, ‘Mind the gap: can Europe and the US build a new financial order?’, CentreForum uncovers the mismatches in financial reform legislation being considered. Obama wants to separate off the Main Street banking sector, backed by government guarantees if they go bankrupt, from Wall Street hedge funds and investment banks that would be allowed to collapse. Securitisation reform – where the EU is planning a 5 per cent retention rule, the US 10 per cent – is another example. There is transatlantic consensus that those complex ‘over-the-counter’ derivatives that led to the collapse and rescue of AIG need to be standardised and traded on exchanges. But countries are diverging on the details of how this should be done.

    These approaches need to be joined up. Finance is global, and apparently small differences in securitisation, derivatives, capital and trading rules are big opportunities for arbitrage. Capital will shift into countries where the returns are greatest.

    CentreForum suggests a practical reform that would make a big difference. The Financial Stability Board should offer appraisals of the systemic risk legislation that is going to pass in 2010 and 2011, highlighting the gaps before the bills are passed. National legislatures may find this unwelcome, but they should recognise that it is in all of their interests to find common solutions to the problem of global financial instability.

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