PUBLIC AFFAIRS AND MEDIA RELATIONS BLOG - Veena Hudson

The eurozone's quantum leap

Suffice to say, it has been a testing few months for the eurozone. 'What was only last Christmas a financial bushfire in Greek financial markets,' writes the Guardian, 'has grown and spread, and is now licking at the borders of Spain and Portugal.' 

When the Greek government doubled estimations of its deficit in October, the cost of servicing its debt - the 'risk' premium - rocketed. Since then, concerns that Greece and other indebted countries will default on their debts, coupled with the previous ambivalence of EU leaders over whether and how to intervene, have caused the euro's value to plummet on world markets.  

Tensions appeared to reach a head last week, with reports that French President Nicolas Sarkozy threatened to pull out of the single currency to force an erstwhile reticent Germany into agreeing a €750bn rescue package for struggling member states. In addition to this unprecedented step, the European Central Bank (ECB) has also announced that it will, for the first time, buy up eurozone countries' debt.

Yet despite an initially positive response, even gestures of this scale do not seem to have reassured traders that the situation is in hand; on Monday, the euro reached a four-year low, moving closer to parity with the dollar. Only two years ago, the euro was touted as the 'saviour of troubled economies', as the most recent intake of EU states looked to join the single currency as a means of protecting themselves against the worst of the global downturn. Now, not only has eurozone membership proved to be no panacea, controversy over the accounting practices by which Greece met accession criteria could considerably decelerate the pace of future admissions. German chancellor Angele Merkel's warning that the bailout can only 'buy time' reflects widespread acknowledgement that the euro's problems will not be solved lightly.   

Some economists believe that the real problem lies in the fact that while the ECB has control over monetary policy, fiscal policy - tax and spending decisions - is in the hands of national governments, who can act irresponsibly. This argument forms the basis of the European Commission's recent proposals that EU members should review their peers' spending plans in order to pre-empt future crises. Financial services commissioner Michel Barnier has also called for greater regulation of credit rating agencies, whose downgrading of Greece's debt status to 'junk' served to worsen the country's, and so the euro's predicament.  

ECB president Jean-Claude Trichet recently called for a 'quantum leap' in eurozone governance. When they meet again in Brussels this week, EU finance ministers must decide whether they are willing to take one.

Coalition governments

This week, David Cameron became not only the first Conservative prime minister of Britain for 13 years, but also the head of the country's first coalition government since the Second World War.

Concern has been raised that such an arrangement will prove inherently unstable and short-lived - yet so rare is a hung result in a UK general election, political pundits have little national history to draw on to substantiate this. And when looking elsewhere for inspiration, the evidence is hardly conclusive.

In Germany, for example, no single party has control of the country's parliament as of this week, when the governing centre-right CDU/FDP coalition lost control of North Rhine Westphalia, and so its majority. On face value, the fact that the arrangement struck by Chancellor Angela Merkel in September has lasted all of eight months seems to demonstrate such pacts are untenable. 

UK voices opposing the abolition of the UK's first-past-the-post (FPTP) electoral system might also point to Belgium as vindication that proportional representation (PR) results in deadlock. In January, the prime minister resigned after the Flemish liberal party withdrew from the country's unwieldy five-faction coalition after only five months. It has also been argued that the reliance of the minority government of Spanish Prime Minister Jose Luis Rodriguez Zapatero on smaller parties to pass law is fuelling ongoing market uncertainty about his ability to push through the economic reform required to prevent a Greek-style debt crisis.

On the other hand, there is a strong case that the strength of a coalition is dependent on national circumstances. Unlike Belgium and Spain - the former of which is so riven along French-Flemish lines that some commentators suggest it no longer exists as an entity - the UK has no nationalist or separatist factions on a scale that could break a government. And despite Germany's current woes, it is perhaps the previous CDU/SPD coalition, combining the centre-right with social democrats, which better reflects the new UK set-up; albeit not without problems, this lasted four years. 

Outside Europe, New Zealand perhaps provides the best indication that the view that coalitions are doomed from the outset is unnecessarily pessimistic. Though no party has formed a majority since it moved from FPTP to PR in 1996, the country has operated under various arrangements - some looser, some stronger - without descending into chaos. The Irish Fianna Fáil/Green alliance has weathered the economic storm.

The future of the UK's Lib-Con pact may be ambiguous - but it is unlikely to prove catastrophic, and will certainly be interesting.

BRICs - a new model?

Economists seem to be inordinately fond of acronyms. As the efforts of European leaders to rescue their 'PIIGS' continue this week, elsewhere eyes have increasingly turned to the BRICs - Brazil, Russia, India and China - as new movers and shakers of the global economy. 

It was Jim O'Neill, a leading economist at Goldman Sachs, who first coined the phrase ‘BRIC' in 2001. 'My basic tenet,' he has since said, 'was that if these countries embrace productivity changes that go with global trade and globalisation… they're likely to become big'. And he was right.

Accounting for one quarter of the Earth's land mass and 40% of its population, the BRICs' combined GDP represents 15% of the global economy: a figure that has doubled in 10 years, and is set to surpass the G7's share before 2040. Given also that they collectively hold over 40% of global currency reserves, the BRICs are simply too big to ignore.

On one hand, the group is notable for its heterogeneity; Brazil and India are democratic, Russia perhaps nominally, while China is a one-party state. Yet on the other hand, several factors draw them together. While their economic policies may differ, all are growth-oriented: aimed at poverty mitigation and diversification. Significantly, all have opened up their markets and weathered the recession (though Russia less strongly) without buying into full liberalisation - a fact that has led some commentators to herald the beginning of a new, post-Washington consensus.

Though their ties are ostensibly economic, moreover, the BRICs have undoubtedly begun to behave as a political entity over previous months. Following their first formal meeting in Russia in June 2009, the group of four - alongside South Africa and Mexico - jointly set out their case for the reform of the Bretton Woods institutions to better represent the developing world, ahead of the summit of G20 nations (of which they form part) last September. Meeting again in Brasilia last week, the BRICs called additionally for reform of the UN, in particular, to afford India and Brazil a seat on its prestigious Security Council. 

Ten years since he foresaw the rise of the BRICs, with economists now positing that the rise of a new N-11 will transform the global economy yet further, Jim O'Neill's call for a 'more optimal state of world governance' needs acting upon. 

UK general election 2010: where are the women?

This election has been widely hailed as the 'Mumsnet election' due to the power wielded by the online forum that boasts 850,000 regular users, and the 'new man' image being presented by party leaders to woo female voters.
 
However, the election represents a step backwards for women in politics, not least because there has been a conspicuous absence of senior female politicians of all of the main parties from the campaign, replaced instead by coverage of the fashion faux pas of the leader's wives and the phenomenon of 'Sam Cam'. The Fawcett Society, for example, has accused all three of the main parties of conducting a charm offensive without substance to win over female voters.
 
Women make up more than half of the voting population but only 19.5% of MPs in the UK, placing the UK 73rd in the world. There are currently only four women in the cabinet and seven women in David Cameron's shadow cabinet.
 
The British Social Attitudes Survey shows that women tend to wait until later in the campaign before deciding who to vote for. They are also less likely to have a stable and long-term attachment to any particular party. This makes them a key group of swing voters, particularly in marginal seats, where they may decide the outcome of the election.
 
David Cameron has stated that he will tackle gender inequality by increasing the number of female Conservative MPs, closing the gender pay gap and addressing childcare issues, and the Conservatives' manifesto was seen as directly targeting female voters.

Indeed, although it seems that the overall gender balance of Parliament may worsen, it is likely that there will be over 50 Conservative women MPs, which would represent significant progress - at the moment, there are only 17 Conservative MPs - 9% of the party's total. However, this is still a tiny amount, and nowhere near a reflection of the makeup of the UK population.
 
Support for Labour among women voters has been higher than support for the Conservatives according to polls, possibly due to its introduction of measures such as extended maternity leave, flexible working and programmes such as Sure Start and following the use of all-women shortlists, which saw the party's number of female MPs increase from 10 to over 90 in 1997. However, Harriet Harman, Labour's deputy leader, has complained that her party's election line-up is too male-dominated.
 
The Lib Dems argue that electoral reform, to create a more proportional system, will result in a more diverse parliament.
 
The UK has no Angela Merkel or Hillary Clinton or even an up-and-coming Shirley Williams or Barbara Castle. This is bad for women, but it is also a shame for the country as a whole. Party leaders should be doing more to support women's political engagement than giving interviews to Cosmopolitan, Glamour and other female-friendly publications.

UK general election 2010: where are the women?

This election has been widely hailed as the 'Mumsnet election' due to the power wielded by the online forum that boasts 850,000 regular users, and the 'new man' image being presented by party leaders to woo female voters.
 
However, the election represents a step backwards for women in politics, not least because there has been a conspicuous absence of senior female politicians of all of the main parties from the campaign, replaced instead by coverage of the fashion faux pas of the leader's wives and the phenomenon of 'Sam Cam'. The Fawcett Society, for example, has accused all three of the main parties of conducting a charm offensive without substance to win over female voters.
 
Women make up more than half of the voting population but only 19.5% of MPs in the UK, placing the UK 73rd in the world. There are currently only four women in the cabinet and seven women in David Cameron's shadow cabinet.
 
The British Social Attitudes Survey shows that women tend to wait until later in the campaign before deciding who to vote for. They are also less likely to have a stable and long-term attachment to any particular party. This makes them a key group of swing voters, particularly in marginal seats, where they may decide the outcome of the election.
 
David Cameron has stated that he will tackle gender inequality by increasing the number of female Conservative MPs, closing the gender pay gap and addressing childcare issues, and the Conservatives' manifesto was seen as directly targeting female voters.

Indeed, although it seems that the overall gender balance of Parliament may worsen, it is likely that there will be over 50 Conservative women MPs, which would represent significant progress - at the moment, there are only 17 Conservative MPs - 9% of the party's total. However, this is still a tiny amount, and nowhere near a reflection of the makeup of the UK population.
 
Support for Labour among women voters has been higher than support for the Conservatives according to polls, possibly due to its introduction of measures such as extended maternity leave, flexible working and programmes such as Sure Start and following the use of all-women shortlists, which saw the party's number of female MPs increase from 10 to over 90 in 1997. However, Harriet Harman, Labour's deputy leader, has complained that her party's election line-up is too male-dominated.
 
The Lib Dems argue that electoral reform, to create a more proportional system, will result in a more diverse parliament.
 
The UK has no Angela Merkel or Hillary Clinton or even an up-and-coming Shirley Williams or Barbara Castle. This is bad for women, but it is also a shame for the country as a whole. Party leaders should be doing more to support women's political engagement than giving interviews to Cosmopolitan, Glamour and other female-friendly publications.

Financial education and the financial crisis

Various studies show that the majority of people have little or no knowledge of basic financial issues.

Worldwide studies by the OECD show that consumers in virtually every country lack adequate financial backgrounds or understanding and that they underestimate their needs for education in the financial area. Surveys across the US, for example, show that many feel financial issues are just too complicated, while research funded by the European Commission underlined that, in Eastern Europe, almost half the population does not have a bank account, which is the basic starting point of any financial operation.

Observers agree that the lack of basic financial understanding among consumers fuelled the crisis; US Treasury Secretary Timothy Geithner recently went as far as to state that the lack of financial literacy among young people is a 'national crisis'. As a consequence, people are becoming increasingly aware of the importance of having financial skills.

Research carried out by Visa in the US revealed that the vast majority of parents interviewed were in favour of financial education at school for their children, and thanks to the recession, advocates of improved financial education are seeing support from decision-makers.

Countries across the EU and the Commission itself have already launched a range of projects to offer financial education to schoolchildren, workers and retired people - a move which ACCA strongly supports. Several of these programmes are aimed at teachers, giving them the necessary tools to teach new subjects. The UK has brought forward plans to teach children financial education (from September 2011 as part of the Children, Schools & Families Bill), although, in this case, the plans have been put on hold due to the impending general election.

Educators and policy makers need to ensure that basic financial education is incorporated within the school curriculum so that pupils are taught the importance of finance, including tax, savings, debt and pensions. A solid foundation of monetary awareness will empower them to attain higher levels of responsibility, more successful entrepreneurship, ultimately leading to better managed businesses and the individual's self-sufficiency in financial matters.

Financial education is an important means of enabling consumers to make informed and responsible decisions about their personal finance, which has a bearing not only on their lives, but also on society and the wider economy.

Stimulus or cuts?

Deputy managing director of the International Monetary Fund (IMF), John Lipsky, painted a grim picture for world leaders at the China Development Forum last week. The average government debt of advanced economies is predicted to hit 110% GDP by 2015 - up from 75% in 2007. Politicians, he warned, must temper public opinion to the austerity that will be required to pay it back. 
 
The efficacy of fiscal stimulus measures is a long-standing debate among economists; John Maynard Keynes advocated government intervention in the wake of the last comparably severe depression of the 1930s. The idea runs that increasing government spending and lowering taxes (variously combined) will stimulate demand in the economy, leading to growth and decreased unemployment. In the UK, for example, the Treasury estimates that a £1bn injection will create a £1.4bn increase in activity, which in turn improves government finances by £1.05bn. 
 
Yet does this work in practice? Critics warn that continuing to spend can be counter-productive; the government must borrow money to give back out, but if the markets think public finances are out of control, the interest rates they charge become increasingly high. This impacts upon interest rates for personal borrowers, decreasing demand in the economy, and negating any benefits the initial outgoing might have had. 

Each dollar, euro or yuan spent by the government, it is argued, is one that is not spent by the private sector, and for every stimulus-born job, one is lost due to a decline in private consumption - a phenomenon known as 'crowding out'. 
 
But governments have not yet stopped spending: the Asian giants have warned it is too early to cut back; the German stimulus has been credited with minimising job losses; US president Barack Obama has championed the effects of his own measures; and fiscal policy is a key battleground of the impending general election in the UK. The IMF, for its part, warns that to stop the flow now could result in a double-dip recession. 
 
With all G20 countries but Britain and Argentina planning to continue their fiscal support beyond 2010, it appears, for the time being at least, consensus exists that it is too early to tighten the purse strings. It remains to be seen how effective this tactic will prove in the long run.

UK general election 2010: a hung parliament?

So, the general election has finally been called for 6 May. Recent opinion polls increasingly indicate that no party will gain the 326 seats required to win an overall majority in Parliament after May's general election.
 
The Conservatives are still predicted to get the largest number of MPs, but have been losing ground steadily since the beginning of the year, on key issues including the economy and their ability to lead the country out of the financial crisis. This is making an outright Conservative victory - which would require the second biggest swing in 60 years - look increasingly unlikely. The result may well be the UK's first post-election hung-Parliament since 1974.
 
Although hung parliaments are normal in countries with different electoral systems - such as Germany - and rarely prove to be a disaster or to have problems tackling large problems, hung parliaments are not common in the UK, largely due to the 'first past the post' system.
 
The most likely outcome is a minority Conservative administration with the government having to work with other parties such as the Liberal Democrats. In this case, the likelihood is that a second general election would follow hot on the heels - within a year - of the first, in order to secure an outright majority.
 
So what would be impact be for on the country and on making legislation?
 

• The key point is that the government is not able to pass laws without the support of members of other parties and that such a regime is fraught and short-termist. This is why there is a perception in the UK that hung parliaments are weak and ineffectual.
• Concerns have been raised in the City, and by some commentators, that a hung parliament would result in a lack of clarity on financial policy, including how to deal with the country's deficit, ultimately damaging the economic recovery and leading some to warn that a hung parliament would be 'catastrophic' for the country.
• There are suggestions that a hung parliament would lead to market uncertainty, which could damage the pound. Standard & Poor's, Moody's and Fitch - the big three rating agencies - have all said that a hung parliament could damage the UK's AAA rating, leading to a UK debt-rating downgrade.
• The sense of stasis can be made worse by the likelihood of a further election within a very short time in order to secure a majority. This means that big decisions are postponed, that politicians are distracted and focused only on the short-term domestic agenda, policy announcements are seen as little more than manifesto pledges, little is achieved and that the country feels like it is in a permanent pre-election period.
• There would also be consequences for the political parties themselves. If the Conservatives do not win this election against an unpopular government and an even more unpopular prime minister, there may be some serious soul-searching as to why. And if Labour do not win, as seems likely, the party is likely to turn on Gordon Brown.

Although a hung parliament returns a government that is far more representative of what the country actually looks like and although there are good points around encouraging consensus in policy-making, there has been little promotion of any positive issues relating to a possible hung parliament.
 
In spite of the polls, there is probably some truth in the notion that the British electorate is fundamentally sceptical of a hung parliament and may give a last-minute nudge to the likely winner.

UK general election 2010 - bank tax

We now know that the UK's budget deficit will be less than expected this year. All the same, £167bn is still a pretty big hole, which will take some years to fill. While politicians have been as yet non-committal about where the necessary spending cuts and tax rises will occur, all three major parties have outlined proposals for taxing public enemy number one: the banks.
 
In the recent Budget, Labour chancellor Alistair Darling endorsed a global risk tax on banks. While he maintained that this should only be implemented as part of an international agreement in order to mitigate competitive distortions, the revenues - an annual levy of just 0.15% on banks' total assets would raise an estimated £3.6bn - would be for national governments to use. 
 
For the time being, it seems that the 'Tobin' or 'Robin Hood' tax has been put on Labour's back burner: a blow for its proponents, given the impetus pundits suggest their backing would lend to a similar drive in the US. High-profile supporters of the measure project that a 0.05% levy on all bank transactions would raise enough to double foreign aid. They hope it will be among the options proffered by the International Monetary Fund at a meeting of G20 finance ministers in Washington in April.
 
The Conservatives' proposals are broadly similar to Labour's - though, unlike Darling, David Cameron has committed to pursuing the measure regardless of how international moves play out. This reflects the view of the Treasury Select Committee, which last week reported that the comparatively large size of the UK banking sector relative to its GDP means unilateral reform is 'in our own self-interest'. One commentator also suggests that while Labour is keen to avoid being seen as anti-capitalist, so the Tories are equally concerned not to be perceived as favouring their rich friends in the City.
 
Taking a different approach, the Liberal Democrats have argued for a 10% tax to be levied on the profits of all UK-registered banks - the proceeds of which would be used to fund a job creation programme. The British Bankers' Association has threatened that such a move, alongside taxes on bonuses, would be damaging and cause financial institutions to relocate; the likelihood - and benefits - of such an exodus are subject to debate.
 
Though they differ on what form a bank tax should take, the UK government - and the electorate - cannot afford not to act. Whoever wins the election, it seems banks' freewheeling days are numbered.

Is a Green Investment Bank the solution?

The establishment of a UK Green Investment Bank (GIB) has been a project of the environmental lobby for some years now. Recently, however, combining as it does the zeitgeists of financial reform and greening the UK, the idea has been fast-tracked to the top of all three major parties' agendas.

The Conservatives have it as the centrepiece of their proposals, and UK chancellor Alistair Darling this weekend committed to a similar scheme ahead of the Budget.
 
According to estimates, an investment of some £230bn in new infrastructure will be needed by 2025 to ensure the UK's energy security and emissions targets are met - yet green groups fear that existing banks will be reticent to engage with the relatively low-yielding renewables sector. An entirely new GIB would, say Green Alliance, 'disburse capital on a commercial basis, but exclusively to companies and projects designed to accelerate the transition towards a low carbon economy' - for example, clean energy, grid improvements and public transport. They suggest using taxpayer shares in nationalised banks, revenue raised by auctioning carbon permits, or fossil fuel taxes to capitalise the bank; the chancellor plans to sell government assets, including the Tote and the High Speed One rail link.
 
But would it work in practice? Green banking is not a new concept; the Co-op has promised since 1992 not to finance 'any business whose core activity contributes to global climate change, via the extraction or production of fossil fuels'. Worldwide investment in clean energy tripled to $70.9bn in the three years to 2006 - yet just months later, major banks were collapsing left, right and centre. The worth of a new GIB will be measured not only by the sustainability of the projects in which it invests, but also the sustainability of the sector in which it operates.
 
There is also the question of whether the UK workforce is equipped for the low-carbon transition. While public spending on science has doubled over the past 10 years, the R&D spending of British firms still lags behind their French and German rivals. It has been estimated that the wind energy industry will require 10 times more jobs over the next decade - some 50,000 by 2020 - but, as one commentator put it, not many people 'come straight out of school with the knowledge of how to calculate load factors on a 100-metre tall wind turbine operating in a force five gale'. The next government will need to work urgently with business to plug the technology skills gap, if the GIB is to have anything to fund.
 
Yet despite the scale of the carbon challenge ahead, there is, as someone once said, no alternative. A GIB could both stimulate the investment and training required to meet it, and provide a model of good governance for UK financial services.