Scoop Election 08: edited by Gordon Campbell

On Cunliffe’s likely role, and France as the next Eurozone crisis country

December 19th, 2011

Later this afternoon, we’ll find out just how the new Labour leader David Shearer has managed the difficult task of rewarding his faction while bringing some of his opponents back into the tent. Since David Parker is almost certain to get the new shadow Finance portfolio opposite Finance Minister Bill English, Shearer’s immediate task is how to include defeated leadership contender David Cunliffe, and to mollify him for the added humiliation of losing his shadow Finance role.

Just guessing… but one solution would be to pit Cunliffe against Steven Joyce in a shadow Commerce/Economic Development role. Clearly, Cunliffe’s talents cannot be wasted entirely. Nor can he be given a reason to sit out the next term brooding in his tent like Achilles, until such time (post-Shearer) as the caucus comes around to apologise.

Using Cunliffe to mark Joyce would also be a highly ironic outcome, given that Joyce is the 800 pound gorilla on National’s front bench. So the reward for Cunliffe will be to do most of the heavy lifting for his caucus opponents during the next term, while Parker gets the far easier job of marking Bill English. I’m guessing that this will be how Shearer will use Cunliffe – I have no inside knowledge – but it would be a gesture of caucus unity that might appeal to Cunliffe’s vanity. They don’t want me, but they need me etc etc…

Meanwhile the Cunliffe foot soldiers most likely to feel the lash from being on the losing team will be Charles Chauvel and Lianne Dalziel. Incredibly, Chauvel has reportedly got offside with some Wellington-based Labour MPs by his consistent support for Cunliffe, despite the (irrelevant) fact that a few troops close to Grant Robertson and Annette King were deployed to help his battle against Peter Dunne in Ohariu. Such are the irrational resentments of Labour’s internal clan politics.

Need it be pointed out that if talent is meant to be the guiding principle, that Chauvel – now likely to be demoted – is patently more talented than Nanaia Mahuta, who is bound to be promoted because, because… she supported Cunliffe, but can’t be punished because Labour needs to maintain its momentum within Maoridom. Sigh.
And now, France. Hate to sound apocalyptic but… “Le ciel nous tombe sur la tête!” In the next few days, the expected credit downgrade of France by the Standard and Poors credit rating agency has the potential to spoil everyone’s Christmas.

The least of these worries is that the S&P credit downgrade will reportedly cost French taxpayers an extra $4 billion a year over the next ten years. Tough on them, given that – as the French have been trying to argue – Britain’s debt position is even worse, so why isn’t S&P coming down harder on the Brits? Good question. That aside, this likely credit downgrade will erode France’s ability to contribute significantly to the save-the-euro plan recently thrashed out in Brussels, thereby making that rescue plan look even less credible than before.

That’s important because… only by having Germany and France pumping in truckloads of dollars to the European Financial Stability Facility does the Brussels plan have any chance of saving Greece, Portugal etc etc from default and eventual departure from the euro – which in turn, would result in the disintegration of the entire European Union project.

Hitherto, budget balancing measures have been the focus of the Eurozone response. Yet budget balancing measures alone were never going to be enough, as former British Prime Minister Gordon Brown told the American journalist Charlie Rose a couple of weeks ago. Policies to promote economic growth, Brown stressed, were also essential:

Europe has three problems, really, and none of them have been properly addressed. One is obviously the fiscal problem itself, the second is a banking problem, and the third is a growth and competitiveness problem. And unless you deal with each of these and deal with them as a group, you’re not going to get the recovery that’s necessary. Low growth will cause deficits to continue to be high.

[Rose] : So which problem should be the top priority?

You’ve got to deal with the three problems together. You need to have measures for growth that allow you to continue to reduce your deficits. One of the problems we face is that, with tough austerity in Greece and Spain and Portugal, growth is not recovering. Therefore, revenues become difficult to collect. We failed to understand that there’s a financial sector problem that’s got to be dealt with, and there’s a competitiveness problem. What should happen now is, first of all, the [European Financial Stability Facility] has got to be strengthened. You’ve got to send a message to the markets that Europe has come together to sort out this problem, and it’s going to create a firewall that is strong enough. You’ve then got to have a longer-term plan for reforming the euro.

Are you talking about the inflexibility of the euro?

[The U.S.] can print dollars, but you’ve also got wage flexibility that is greater than Europe’s. You’ve got greater interstate mobility. People are prepared to travel and migrate within America. And you’ve got a central budget of 25 percent of your GDP. So you’ve got a budget that can actually intervene when you’ve got problems in some of the poorer states and some of the most difficult areas. Europe’s budget is only 1 percent of GDP. And we have got far bigger differences between the states in Europe than you have in the U.S., where perhaps the gap between the poorer states and the richer states is about 1.5 to 1. In Europe, it could be as much as 4, 5, 6 to 1.

Depressed, yet? Obviously… the Eurozone has far deeper problems than the cartoon depictions of thrifty Germans and wasteful, indolent Greeks and Italians who need a taste of the fiscal lash to get their houses in order. That was never the main problem.

In good times, the weaker Eurozone members were captive markets for the Germans – who had wanted them within the euro all along, lest they become low wage/lowcost industrial competitors for Germany, if kept outside it. (The likes of George Friedman in Stratfor have also cited Germany’s geographical advantage over southern Eurozone nations, by dint of Germany’s proximity to river-borne trade routes.)

So, just as the Eurozone recessionary problems weren’t grounded in bad behaviour by the lazy, wasteful Greece and Italy, they can’t be solved by simply tightening the spending screws on those countries. If only because, during a recession, policies to tighten the screws are likely to choke off the revenues that make repayment even remotely feasible, while wiping out those diligent members of the middle class in countries such as Greece, who had been dutifully paying their taxes all along.

Policies to promote growth, in the midst of a recession? That need should be ringing a bell in New Zealand as well – where to date, the Key government has been behaving as if the only job that government needs do is to balance the budget, ASAP.

Balancing the budget is relatively easy, if you’re not on the receiving end of the pain. Policies to promote growth – which are necessary to create a sufficient number of well paying jobs to meet the real and aspirational goals of the middle class – is the far harder part of the economic development equation. That’s why the contest between Joyce and Cunliffe over the policy options to promote economic growth will be the real battleground of this second term.


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    1. 18 Responses to “On Cunliffe’s likely role, and France as the next Eurozone crisis country”

    2. By alain bonard on Dec 19, 2011 | Reply

      “Policies to promote growth, in the midst of a recession? That need should be ringing a bell in New Zealand as well – where to date, the Key government has been behaving as if the only job that government needs do is to balance the budget, ASAP.
      Balancing the budget is relatively easy, if you’re not on the receiving end of the pain. Policies to promote growth – which are necessary to create a sufficient number of well paying jobs to meet the real and aspirational goals of the middle class – is the far harder part of the economic development equation.”

      Right on target, Gordon. A lot of growth-promoting transport routes were created and new technologies adopted as part of getting out of the ‘great’ depression.

    3. By Joe Blow on Dec 19, 2011 | Reply

      Yeah, you were right. Cunliffe got the portfolio of economic development… Jacinda Ardern (another one to watch) has got socila development which is a good move. Shane Jones is also back on the front bench (done his time in purgatory – lol naughty, naughty!). Nanaia Mahuta got education (you were gith there again). Yip Charles Chauvel and Lianne Dalziel both down to 13 and 14 respectively.

      I suspect the UK isn’t getting a downgrade like France because it’s chasing the neo-liberal austerity phantom. Creating growth through public spending does not seem to be on the global agenda just yet as the global economy hasn’t fallen apart yet. Austerity is going to be the word of the day until neo-liberalism properly falls over like Keynesianism did… we have to let them try it so that the phantom chasers can’t blame it on public spending. Hang on to your hats folks as it’s going to be one bumpy ride…

    4. By Joe Blow on Dec 19, 2011 | Reply

      @ alain bonard

      Don’t forget the role WWII played getting everyone out of the Great Depression. Nothing like a world war to give governments an excuse to nationalise everything and start spending their way out of the hole…

    5. By Annette King on Dec 22, 2011 | Reply

      Gordon I don’t know who gives you your information regarding Wellington Labour. It is wrong to say neither Grant nor I gave much help to Charles in Ohariu. In fact we both provided many of the young activists who worked tirelessly for months. Suggest you ask Charsles to confirm. We work as a tight team in Wellington for the good of our region.

    6. By Rob on Dec 23, 2011 | Reply

      You are right on the button re Joyce as well as being a creep
      He is evil and Cunliffe will be just the person to
      Help our community show what he represents
      Cunliffe has a massive task to stop his drive to reduce
      large chunks of society being disadvantaged

    7. By Joe Blow on Dec 26, 2011 | Reply

      @ Leon

      That’s the problem with Russell Norman too: another absolute Suit-And-Tie, utterly incapable of making any kind of so-called “Stand” against the World Bank, International Monetary Fund, and the World Trade Organization.

      They’ve all accepted capitalism Leon. The Mana Party needs you!

    8. By Joe Blow on Dec 28, 2011 | Reply

      @ Leon

      It’s all still within the capitalist system’s framework though Leon:

      Notice how Locke’s old stuff on trade has been relegated to a short summary amongst the new policy on supporting businesses? But as you’re not really a socialist anymore, I guess you are also accepting capitalism.

      It could be a tough next term for you Leon. You should have voted Mana…

    9. By Joe Blow on Dec 31, 2011 | Reply

      @ Leon

      Now you’re talking about the global economy and debt! Let’s talk capitalism! The US has recently had a fall in unemployment but apparently this is due to elderly leaving the work force. Interesting, but not the real growth the punters are looking for on Wall Street.

      Now let me change the subject just a little bit. It’s all about a statement John Key made in Parliament the other day about our public (government) debt. It involves more than one link so I might have to make more than one post.

      On 21 Dec 2011 when Key addressed the House in reply he stated the following:

      “Well, I will tell you what the start was, Mr Robertson. It was when we inherited 10 years of deficits from the Labour Government. It was when we inherited debt going to 60 percent of GDP, and in 3 years we turned that round.”

    10. By Joe Blow on Dec 31, 2011 | Reply

      @ Leon

      In fact, the government NZ Debt Management Office website states that public debt at the end of 2008 when National took over from the Labour government was 17.7% of GDP. That was reduced by the labour government from 23.9% in 2005. By the end of 2009 public debt had risen under National to 23.1%.

      Interestingly, the NZDMO does not give recent figures for public debt…

    11. By Joe Blow on Dec 31, 2011 | Reply

      @ Leon

      The CIA Fact Book gives the estimate for 2010 at 27.5% of GDP.

      That’s not counting what they’ve racked up over 2011.

      Does Key think we’re chumps that’ll believe anything he tells us? The answer is: “Yes, he does!”

    12. By Joe Blow on Dec 31, 2011 | Reply

      @ Leon

      The real problem, by far, is private debt:​New_Zealand_overseas_debt_1993-​2010.svg

    13. By Joe Blow on Dec 31, 2011 | Reply

      @ Leon

      This link should work:​New_Zealand_overseas_debt_1993-​2010.svg

    14. By Joe Blow on Dec 31, 2011 | Reply

      @ Leon

      You might have to copy and paste it into your browser… It’s a graph of NZ external debt from 1993-2010 by the NZ Reserve Bank.

    15. By Joe Blow on Dec 31, 2011 | Reply

      @ Leon

      As for China not being capitalist, you need a reality check. It’s known as “Chinese Capitalism” for a reason Leon. You seem to be a little confused about what capitalism is Leon. Not to mention what socialism is…

      All urban land is owned by the state in China, but this does not stop people from buying very long-term land use rights. This has also not stopped a property investment boom in China, which appears to be coming to an end as China’s economy slows…

      China is an export led economy which sells most of its wares to the West. It has used state intervention and an artificially low currency to prop up its exports but that can only last so long. If the US and EU do not recover then everyone gets hurt including China…

    16. By Joe Blow on Dec 31, 2011 | Reply

      @ Leon

      I assure you that the Chinese are probably one of the most materialistic people on the face of the earth. That’s what makes them far better at capitalism than us. Although even they cannot be immune to over heating their economy if they aren’t careful. But they don’t have a choice because if they don’t maintain economic growth and more jobs for the continuous stream of rural poor, they’ll end up with a revolution on their hands…

      Leon I think you need to learn more about economics. You cannot convincingly fight what you do not understand. All of what I know about economics is self learnt. Here is an interesting article in the economist which would be a good start. It has a particular angle but there is more than one view in it. Check it out. Let me know if you have any questions:

      Lessons of the 1930s – There could be trouble ahead

    17. By Joe Blow on Jan 1, 2012 | Reply

      @ Leon

      Like I said you cannot convincingly fight what you do not understand Leon…. so instead you abuse people and project your boogie men onto them… it’s boring… I give up…

    18. By Leon Henderson on Jan 20, 2012 | Reply

      A brilliant exposition from the Maestro John Pilger:

    19. By Joe Blow on Jan 26, 2012 | Reply

      @ Leon

      Na Leon, I like Assange’s lawyer…

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