In many scholarly and activist circles, the International Monetary Fund (IMF, or ‘the Fund’) has a reputation as a global bully. The phrase ‘Washington consensus’ has come to invoke a rigid orthodoxy of austerity and liberalization which the Fund, along with its cousins the World Bank and the US Treasury, imposes on developing countries. As an organization, the IMF is seemingly monolithic, drawing comparison to the Vatican even amongst its own staff.
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Economists are better at history than forecasting. This explains why financial journalists sound remarkably intelligent explaining yesterday’s stock market activity and, well, less so when predicting tomorrow’s market movements. And why I concentrate on economic and financial history. Since 2015 is now in the history books, this is a good time to summarize a few main economic trends of the preceding year.
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By David Denver and Mark Garnett
The latest European Parliament and local council elections, held on Thursday 22 May 2014, has shown, once again, that it would be foolish to make any predictions about political future contests in Britain. The two most striking aspects of the results were the advances made by UKIP and the collapse of Liberal Democrat support.
In the locals, UKIP increased its roster of councillors from 2 to 163 while in the European elections it topped the poll with 27.5% of the vote and netted 24 of the 73 UK seats. The Liberal Democrats, meanwhile, lost more than 300 council seats and came fifth in the European elections (sixth in both Scotland and Wales) with a miserable 6.9% of the votes, retaining just one seat. Commentators and (some) politicians alike were not slow to describe these election outcomes as constituting a ‘political earthquake’ in British electoral politics.
However, we believe that features such as diversity, dealignment, and disillusion have emerged more and more strongly in British electoral politics over the past 40 years. This makes us reluctant to offer predictions about future electoral trends and the ‘earthquake’ seen recently.
Diversity is indicated by the fact that (leaving aside Northern Ireland) seven different parties won representation in the European Parliament with the largest number going to a party founded only 21 years ago. In the elections for English councils, while UKIP dominated the headlines the Green Party almost doubled its contingent of councillors (from 20 to 38), while ‘Independents’ of various kinds won more than a hundred seats. Going back 50 years, in the 1964 election the two major parties took 88% of the votes cast. This year, they had an estimated 61% of the ‘national equivalent vote’ in the locals and just 49% of the real votes in the Euro-elections.
Dealignment refers to a long-established trend whereby the sense of attachment to traditional parties that voters used to feel has become progressively weaker. Rather than turning out almost automatically for the party that they (and probably their parents) always supported, they are more likely to weigh up the appeals of the various options available and more willing to switch across parties. That is why the days of two-party dominance look increasingly distant. In the elections of May 2014, by all accounts, UKIP took votes from previous supporters of all three parties while differences in the council and Euro results indicate that a significant proportion of the electorate chose different parties in the two separate contests. It is salutary to recall, too, that just four years ago during the general election campaign Nick Clegg and his party seemed to be the darlings of the electorate and ‘Cleggmania’ appeared to be about to sweep the old two-party system into history. Their performance in May 2014 shows how fickle and fluid electors can be when they lack strong attachments to political parties.
When dealignment is accompanied by widespread disillusion with the parties that have dominated elections since 1945 then the inevitable result is success for minor parties. In the past few years David Cameron’s policies have alienated many traditional Conservatives while the performance of Ed Miliband has been, to say the least, not very impressive. The Liberal Democrats used to prosper in these sorts of circumstances but their participation in a governing coalition with the Conservatives and the difficulties encountered by their leader have ensured that they have attracted more than their fair share of odium.
If the UKIP surge really did make the earth move, then, this was a seismological event waiting to happen. Apart from speculation about the fates of the main party leaders, post-election comment focused on the possibility that UKIP could translate its widespread support into a significant number of seats at the 2015 general election. A major problem here, of course, is the first-past-the-post electoral system which operates strongly in favour of two-party competition. To gain parliamentary representation UKIP will have to channel its resources into specific seats where it seems to enjoy some concentration of support.
The post-election comments of the party leadership showed that they understand this and they will use the local election results as they basis of their calculations. Just as the Liberals did in the past, UKIP hope to build on local success to boost their chances of representation at Westminster. That is one indication of the importance of local elections in British politics. Another, quite different, indication is that a poll conducted after the announcement of the local election results but before the Euro-elections were declared found that support for UKIP had increased. Local elections in Britain have not received a great deal of attention from academics (with a few honourable exceptions) which is why we aim to publish an account of them at a future date.
Finally, will the UKIP surge be maintained through to the next election? Past experience suggests probably not but when earthquakes are going on past experience may not be a very good guide. Nonetheless, the volatility of the modern electorate offers some hope for the major parties. Just as voters are willing to switch away from a party they could just as easily switch back in other circumstances.
David Denver and Mark Garnett are respectively Emeritus Professor of Politics and Senior Lecturer in Politics and International Relations at Lancaster University. Their book British General Elections since 1964 was published by Oxford University Press in 2014.
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By John McCormick
Few times have been worse than the present to say anything good about the European Union (EU). It has faced many crises over the years, but none have been as serious as the current problems in the eurozone. Since news first broke of the difficulties in Greece in late 2009, pundits and political leaders have been falling over themselves in their efforts to ratchet up the language of doom and gloom. Under the circumstance, euro-optimists might be well-advised to lay low, and certainly they seem hard to find at the moment.
And yet this is the very time to remind ourselves of the achievements of the EU, because if we are to make sensible choices about where we go from here, we will need to have a clear idea of both its successes and its failures. Whatever happens to the euro, the EU is obviously on the brink of some major changes, generated not just by its immediate problems but also by some broader political and philosophical questions about the meaning and purposes of the European project.
Critics have focused on numerous themes in their recent attacks on the EU, among which is the recurring question of just what it means to be European. The EU is regularly accused of lacking clear purpose, and conventional wisdom suggests that Europeans have too little in common to weather the crises. After decades of convergence, we are now often told that Europeans are moving apart, with a growing backlash against European integration and – more specifically – a right-wing reaction against immigration, and talk of the failure of multiculturalism.
In truth, however, Europeans have a great deal in common , but they are often the last to realize this because they are repeatedly told about their differences, and the EU is repeatedly castigated for its lack of leadership and its failure to make a mark as an actor in the international system. The result is that many can no longer see the wood for the trees. It is only when we compare the European experience with that of other parts of the world that the patterns begin to emerge.
One of the clearest examples of Europeanism (if we understand this term as meaning the distinctive set of values and preferences that drive choices and preferences in Europe) is its secularism. Where support for organized religion is growing in almost every other part of the world, in Europe it is declining, and this is impacting the way Europeans think about politics, science, social relations, and moral questions.
Another example is offered by the redefinition of the role of states. It was in Europe that the Westphalian state system was born, and yet Europeans since the end of the Second World War have been reviewing their association with states: more are thinking of themselves as Europeans, while identity with nations has been growing. Meanwhile, Europeans have been rejecting traditional notions of patriotism, which – thanks to its long association with nationalism – has a bad reputation in Europe.
On the international front, the Europeanist model is notable for its support of civilian over military means for dealing with threats to security, its support for multilateralism over unilateralism, a
By Barry Eichengreen
If the euro’s crisis has a silver lining, it is that it has diverted attention away from risks to the dollar. It was not that long ago that confident observers were all predicting that the dollar was about to lose its “exorbitant privilege” as the leading international currency. First there was financial crisis, born and bred in the United States. Then there was QE2, which seemed designed to drive down the dollar on foreign exchange markets. All this made the dollar’s loss of preeminence seem inevitable.
The tables have turned. Now it is Europe that has deep economic and financial problems. Now it is the European Central Bank that seems certain to have to ramp up its bond-buying program. Now it is the euro area where political gridlock prevents policy makers from resolving the problem.
In the U.S. meanwhile, we have the extension of the Bush tax cuts together with payroll tax reductions, which amount to a further extension of the expiring fiscal stimulus. This tax “compromise,” as it is known, has led economists to up their forecasts of U.S. growth in 2011 from 3 to 4%. In Europe, meanwhile, where fiscal austerity is all the rage, these kind of upward revisions are exceedingly unlikely.
All this means that the dollar will be stronger than expected, the euro weaker. China may have made political noises about purchasing Irish and Spanish bonds, but which currency – the euro or the dollar – do you think prudent central banks will find it more attractive to hold?
There are of course a variety of smaller economies whose currencies are likely to be attractive to foreign investors, both public and private, from the Canadian loonie and Australian dollar to the Brazilian real and Indian rupee. But the bond markets of countries like Canada and Australia are too small for their currencies to ever play more than a modest role in international portfolios.
Brazilian and Indian markets are potentially larger. But these countries worry about what significant foreign purchases of their securities would mean for their export competitiveness. They worry about the implications of foreign capital inflows for inflation and asset bubbles. India therefore retains capital controls which limit the access of foreign investors to its markets, in turn limiting the attractiveness of its currency for international use. Brazil has tripled its pre-existing tax on foreign purchases of its securities. Other emerging markets have moved in the same direction.
China is in the same boat. Ten years from now the renminbi is likely to be a major player in the international domain. But for now capital controls limit its attractiveness as an investment vehicle and an international currency. This has not prevented the Malaysian central bank from adding Chinese bonds to its foreign reserves. It has not prevented companies like McDonald’s and Caterpillar from issuing renminbi-denominated bonds to finance their Chinese operations. But China will have to move significantly further in opening its financial markets, enhancing their liquidity, and strengthening rule of law before its currency comes into widespread international use.
So the dollar is here to stay, more likely than not, if only for want of an alternative.
The one thing that co
