Is the UK falling into the old trap of blindly following the Americans? Across the Atlantic, the financiers are still master of the universe but only just. The Poulson package is in trouble. At $700 billion and rising it could cost every American family $5000. It As a New York Times analyst puts it : “The initial scepticism that greeted its unveiling has only deepened. Some are horrified at the prospect of putting $700 billion in public money on the line. Others are outraged that Wall Street, home of the eight-figure salary, may get rescued from the consequences of its real estate bender, even as working families give up their houses to foreclosure. But Times columnist Gerard Baker may be right: Mr Paulson has time and chaos on his side.
Ever more global plans are now demanded, a G7 plan a Euro-plan,. Where is the British plan, they ask? The Bank of England strategy is more cautious. Against these calls and the advice of the radical and deeply gloomy state interventionist Will Hutton, the extension of the Bank of England’s Special Liquidity Scheme from the end of next month to January shows the Bank prefers jump-starts to a full high octane new engine to get the banks to lend again. Along side the Scheme Gordon Brown is putting his faith in his long-term advocacy of an international framework of regulation to boost confidence. You’ve got to wish him luck; its a whole lot cheaper. It may have to be faced: just as in the 1950s and 60s the British economy could not support an international post-imperial Sterling Area, so the UK of today may not be able to sustain the position of London as joint world centre with New York of international capital markets.
As Bill Emmott, former Economist editor tells it: the true impact of this expansion of public spending lies in politics, and in what this rescue will now make more difficult or perhaps impossible: the expansion of other areas of public spending, such as healthcare or public programmes for alternative energy.
In the end it comes down to politics. The problem is, politics has never been this weak for thirty years. The timing of this financial crisis couldn’t be worse and augurs badly for for a new era of international banking confidence. A lame-duck unpopular US president, an election campaign thrown off the rails and in Britain, the near-collapse of government authority. Were lucky that the only external enemy is al-Qaida.
Former BBC journalist and manager in Belfast, Manchester and London, Editor Spolight; Political Editor BBC NI; Current Affairs Commissioning editor BBC Radio 4; Editor Political and Parliamentary Programmes, BBC Westminster; former London Editor Belfast Telegraph. Hon Senior Research Fellow, The Constitution Unit, Univ Coll. London