Brinkmanship: it all goes back to the banking crisis
The deep divisions exposed by the rescue of the banks have led us to this cliff edge
It is becoming predictable, but it is still unnerving. Every few weeks either Europe or the United States marches up to the financial cliff edge, has a huge argument with itself, peers over into the abyss and then backs away.
This weekend the world watched on tenterhooks as America's quarrelling politicians raced against the clock to prevent a default on its massive debt. At the time of writing the last-minute fiscal package agreed between the President and Congressional leaders has passed the House of Representatives and is about to be voted on by the Senate. The betting is that it will secure approval, but no one thinks this weekend's emergency marathon has settled the matter for long.
Two weekends ago it was Europe's turn. As per usual, its leaders were split over how to rescue Greece and the entire euro project was said to be at risk. Panic over, the euro is still afloat. But, just as in the US, everyone expects that there will soon be another nail-biting few days, as the eurozone struggles once again to stave off meltdown.
On the face of it, none of this makes any sense. Raising the US debt ceiling, the cause of last weekend's crisis, is something that has been done hundreds of times before. Bailing out Greece, Ireland and Portugal, though certainly expensive, should not be beyond the European Central Bank and the eurozone governments acting in concert. England, after all, has been carrying Scotland, Wales and Northern Ireland, for as long as anyone can remember.
To understand why the two largest economies in the world insist on tying themselves up in knots rather than doing what everybody else considers obvious, one has to go back to the credit crunch - which this month marks its fourth anniversary.
By acting to support the banking system through its biggest crisis since the Thirties, governments on both sides of the Atlantic saved their economies from disaster. The downside, which only became clear later, was that by taking on the bloated liabilities of their irresponsible banks, most of them effectively beggared themselves for years to come.
Shock over this has turned to anger as economies across the western world have struggled to cope, let alone recover. Popular outrage at the way the banks, having been rescued from the consequences of their vast incompetence, have blithely returned to their old speculative ways, has not helped.
But what has made the situation especially toxic in the eurozone and the US is that they are deeply divided, not just over what to do next but on the basic principles of how they should be run. As a result, what started as a financial problem has, in both cases, morphed into a wider political crisis.
In the US, the self-proclaimed Tea Party on the Republican right is so viscerally opposed to big government, let alone any hint of a tax rise, that many of them positively welcome the prospect of the US Treasury reneging on its obligations. By their reasoning, if the government is bust it will have no option but to do much less. If you think like that, brinkmanship of the sort we saw this weekend does not seem so frightening.
Meanwhile in Europe, the showdown is not over the role, or even the size of government. Rather it is about who is going to pay, and in particular whether Germany and the solvent North will have to pick up the tab for the bankrupt South.
If brinkmanship is needed to ensure this does not happen that is fine by the Germans, which is why Angela Merkel has been the most obdurate when it comes to helping the Greeks. She knows full well that many of her countrymen would be only too happy were the euro to fail.
All of which, for a change, makes Britain look a model of political and financial reasonableness. Being out of the eurozone means we don't have to take sides in their endless wrangles. Nor does the Tea Party have any resonance over here.
Our deficit may be bigger even than Greece's, but one of the most striking things about British politics at the moment is the way in which the coalition has managed to maintain a surprisingly broad consensus behind its financial strategy.
It will not be enough to protect us, however, if either the US or Europe goes over the brink. Playing chicken with your economy is dangerous and liable to lead to a nasty accident. It is a point both the Congressional leaders in the US and the grand panjandrums of the eurozone need to take on board - preferably before next weekend. ·
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