Amartya Sen on Greek debt, ratings agencies and the threat to European democracy

Welsh politics is depressing me no end, so I thought i’d share this lengthy piece from Nobel Winning Economist and author of Development as Freedom Amartya Sen on the real crisis facing us.

He writes ‘Europe has led the world in the practice of democracy. It is therefore worrying that the dangers to democratic governance today, coming through the back door of financial priority, are not receiving the attention they should. There are profound issues to be faced about how Europe's democratic governance could be undermined by the hugely heightened role of financial institutions and rating agencies, which now lord it freely over parts of Europe's political terrain.

Two distinct issues need to be separated. The first concerns the place of democratic priorities, including what Walter Bagehot and John Stuart Mill saw as the need for "governance by discussion". Suppose we accept that the powerful financial bosses have a realistic understanding of what needs to be done. This would strengthen the case for paying attention to their voices in a democratic dialogue. But that is not the same thing as allowing the international financial institutions and rating agencies the unilateral power to command democratically elected governments.

Second, it is quite hard to see that the sacrifices that the financial commanders have been demanding from precarious countries would deliver the ultimate viability of these countries and guarantee the continuation of the euro within an unreformed pattern of financial amalgamation and an unchanged membership of the euro club. The diagnosis of economic problems by rating agencies is not the voice of verity that they pretend. It is worth remembering that the record of rating agencies in certifying financial and business institutions preceding the 2008 economic crisis was so abysmal that the US Congress seriously debated whether they should be prosecuted.

Since much of Europe is now engaged in achieving quick reduction of public deficits through drastic reduction of public expenditure, it is crucial to scrutinise realistically what the likely impact of the chosen policies may be, both on people and the generating of public revenue through economic growth. The high morals of "sacrifice" do, of course, have an intoxicating effect. This is the philosophy of the "right" corset: "If madam is at all comfortable in it, then madam certainly needs a smaller size." However, if the demands of financial appropriateness are linked too mechanically to immediate cuts, the result could be the killing of the goose that lays the golden egg of economic growth.

This concern applies to a number of countries, from Britain to Greece. The commonality of the "blood, sweat and tears" strategy of deficit reduction gives some apparent plausibility to what is being imposed on more precarious countries like Greece or Portugal. It also makes it harder to have a united political voice in Europe that can stand up to the panic generated in the financial markets.
In addition to a bigger political vision, there is a need for clearer economic thinking. The tendency to ignore the importance of economic growth in generating public revenue should be a major item for scrutiny. The strong connection between growth and public revenue has been observed in many countries, from China and India to the US and Brazil.

There are lessons from history here, too. The big public debts of many countries when the second world war ended caused huge anxieties, but the burden diminished rapidly thanks to fast economic growth. Similarly, the huge deficits that President Clinton faced when he came to office in 1992 melted away during his presidency, greatly aided by speedy economic growth.

The fear of a threat to democracy does not, of course, apply to Britain, since these policies have been chosen by a government empowered by democratic elections.

Even though the unfolding of a strategy that was not revealed at the time of election can be a reason for some pause, this is the kind of freedom that a democratic system does allow the electorally victorious. But that does not eliminate the need for more public discussion, even in Britain. There is also a need to recognise how the self-chosen restrictive policies in Britain seem to give plausibility to the even more drastic policies being imposed on Greece..

How did some of the euro countries get into this mess? The oddity of going for a united currency without more political and economic integration has certainly played a part, even after taking note of financial transgressions that have undoubtedly been committed in the past by countries such as Greece or Portugal (and even after noting Mario Monti's important point that a culture of "excessive deference" in the EU has allowed these transgressions to go unchecked).

It is to the huge credit of the Greek government – George Papandreou, the prime minister, in particular – that it is doing what it can despite political resistance, but the pained willingness of Athens to comply does not eliminate the European need to examine the wisdom of the requirements – and the timing – being imposed on Greece.

It is no consolation for me to recollect that I was firmly opposed to the euro, despite being very strongly in favour of European unity. My worry about the euro was partly connected with each country giving up the freedom of monetary policy and of exchange rate adjustments, which have greatly helped countries in difficulty in the past, and prevented the necessity of massive destabilisation of human lives in frantic efforts to stabilise the financial markets. That monetary freedom could be given up when there is also political and fiscal integration (as the states in the US have), but the halfway house of the eurozone has been a recipe for disaster. The wonderful political idea of a united democratic Europe has been made to incorporate a precarious programme of incoherent financial amalgamation.

Rearranging the eurozone now would have many problems, but difficult issues have to be intelligently discussed, rather than allowing Europe to drift in financial winds fed by narrow-minded thinking with a terrible track record. The process has to begin with some immediate restraining of the unopposed power of rating agencies to issue unilateral commands. These agencies are hard to discipline despite their abysmal record, but a well-reflected voice of legitimate governments can make a big difference to financial confidence while solutions are worked out, especially if the international financial institutions lend their support. Stopping the marginalisation of the democratic tradition of Europe has an urgency that is hard to exaggerate. European democracy is important for Europe – and for the world'

TAN 8 is latest evidence the First Minster is a follower not a leader

First Minister Carwyn Jones and his advisors are probably feeling good about their ‘victory’ over the UK Government over TAN 8 and devolving energy powers by highlighting the UK Government hostility to devolving powers to the Welsh Assembly and proving they are ‘standing up for Wales’.

I hate to burst the bubble but the TAN 8 fiasco was nothing of the sort, the whole thing is a humiliating climb down followed by opportunism and a master class in distraction politics from a Welsh Government under pressure over its own energy policy failures.

Welsh Government Minster’s knew full well during the last Assembly term the groundswell of anger of residents in Montgomeryshire against the wind farm proposals and wider concerns of residents in Mid Wales, but stubbornly refused to change the TAN 8 guidance despite being lobbied and pressed on the matter by campaigners.

Cawryn was the Environment Minister who signed off TAN 8 and has only acted now because there are political points to be scored from the evil Tories being nasty to Wales narrative rather than any point of principle. His phrase about ‘if we are going to be blamed for the development we might as well have the powers’ on Monday sums up his thinking.

Maybe he should be reminded that devolving the energy powers to Cardiff Bay could have been done by the previous Labour Government, it didn’t happen surprise surprise because Welsh natural resources are valuable and no UK Government is going to give them up without a fight. So blaming the Conservative/Lib Dem Coalition for doing what the Labour Government did before it is disingenuous and more than a touch cynical.

It’s also worth saying there is cross party support in the Assembly for energy powers to be devolved, something that has been missing from the reporting of the story so far. A united Welsh political voice is a stronger voice in negotiating with Whitehall, when will the Welsh Government learn this fact and use it to our advantage?

But the saddest part about this is that for all the heat and light it generated its changed little if anything. The wind farm and substation in Montgomeryshire could still get the go ahead as the decision is made by the UK Government and the powers won’t be devolved to the Welsh Government.

If that turns out to be the case then it’s a double failure for the Welsh Government that, like so many failures before it will be dressed up as success and swallowed by a gullible media and electorate.

New boss, same old problems

As Plaid Cymru big wigs gathered in Aberystwyth to rake over the ashes of their latest electoral setback there seems little acknowledgement among them of the hole the Party is in.

They have instigated a root and branch review of all Plaid Cymru’s activities to be led by Eurfyl ap Gwilym and appointed a new Chief Executive Rhuanedd Richards, a former BBC Wales employee and One Wales SpAd, who claimed it wasn’t a crisis but a sense of urgency that the party faced.

All well and good, but it looks like a shuffling of the pack rather than signifying any meaningful changes are afoot. After all these were some of the people in positions of influence when the party’s 2010 General Election fiasco was unfolding followed by May’s debacle, how can they be the ones to turn the Party’s fortunes around members will rightly ask?

And even if the review comes up with new ideas and policies, something Plaid Cymru are pretty good at, the dilemma as most Plaid and others bloggers have debated since the Assembly election, is which direction do they go?

Some want a harder nationalist message that they think will appeal to voters, another group think a few tweaks to the status quo and negotiation of a One Wales 2 Coalition is the answer, others meanwhile want more breathing space and to shift the focus onto economic matters that will chime with voters in these tough economic times, while others think the cultural agenda needs more prevalence – it’s not something the Ieuan Wyn Jones’s successor can’t easily resolve, but they will need to if they are to be more than minor players.

And then there is the issue of the Welsh language, whether Plaid like it or not they are still seen as the best language pressure group in Wales rather than a serious political party by many, a point reinforced their internal polling.

And as Professor Roger Scully said in response to Adam Price’s essay ‘Any party effectively ruling out 65% of the population is going to be likely to struggle.’ It’s a valid but hardly new or insightful point and one that needs thought and tackling head on if Plaid are not just to breakthrough, but build support in places they are currently nonexistent as well as keep their heartlands happy.

All the parties apart from Labour are struggling after the election and it would have been a period of reflection and readjustment for Plaid Cymru anyway with such poor Welsh Assembly results, but their problems are magnified when the SNP are riding the crest of a wave in Scotland. Only time will tell if they learn lessons and succeed in reconnecting with the Welsh electorate in a meaningful way.