Tuesday, 19 April 2011

Debtors and Creditors: Who's Bothered?

Now that the US Treasury has had its warning about its government deficit from the credit rating agency Standard and Poor's, the landscape of the new global capitalism is becoming clearer. It is now not so much that there are debtor and creditor regimes, though this is a feature of the topography. It is more that there are debtors (like the UK and Ireland) who care greatly about their respectability and credit-worthiness, and some (like the USA and Greece) who care far less; and there are some creditors (like China) who are in a strong position to exploit their advantages in global markets, and others (like Japan) which are actually quite vulnerable.

The Americans and the Greeks have insouciance about their credit rating, but little else, in common. In the case of the USA, the bickering between the president and a Republican congress over how to reduce the deficit is an inconvenience, but it is unlikely to damage the living standards of American citizens because the savings-based wealth accumulated in countries like Japan has nowhere else to go; the dollar is still the dominant world currency. So little sleep will be lost in Washington about the Standard and Poor's warning, at least for now; a trillion and a half dollars of debt can continue to mount up for the time being.

In the Greek case, it is the people who refuse to accept responsibility for the government's debt. Acts of resistance, from refusing to pay tolls for roads not yet constructed to witholding council tax payments, are making life hard for the authorities. But they in turn can ultimately afford to shrug their shoulders; everyone knows that it is not a question of whether Greece will default on its debts but when. And that everyone includes its bondholders and its European bail-out guarantors.

Does this mean that Greek stock is plummeting in world markets? Certainly not. Investors recognise that it is only by defaulting that Greece has any chance of achieving economic recovery. If it repays the loans given it as an uncompetitive bankrupt, it will be stuck in a downward spiral of austerity for decades. The resistance of citizen tax-revolters is doing Greece a big favour in the world economy. The compliance of Irish and Portuguese citizens in their collective misery is confirming their continuing impoverishment.

Among the creditor regimes, China can simply go on acquiring the foreign land and infrastructural facilities it needs to supply its export-led boom; others' debts are opportunities rather than constraints. For Japan, the situation is anxious in the short term, because of the cumulative impact of the tsunami and the nuclear accident, but in the medium term the reconstruction programme will stimulate its sluggish economy. Too much saving, not too much debt, has been its problem.

The UK is a more complex case. The 'successful', 'world-class' sector of its economy, the City of London, needs to be seen as solvent and supremely profitable. The government has gone into massive debt to protect its reputation, and must now do an elaborate dance, appearing to enforce a new regime of stricter regulation, while actually allowing it to make its risky fortune in the global financial casino.

Much of the rest of the economy, and the part which supplies employment and income to the majority of the population, is more Portugal or Greece than Hong Kong or Shanghai. While Osborne simpers to the City, Cameron and his Big Society missionaries must persuade the proles to accept a new kind of communal co-operation, the simple pleasures of taking in each other's washing and organising royal wedding street parties.

The problem for the coalition government is to sell this dualised future to the younger generation. Those who run up ruinous debt for the dream of a plum, plutocratic post in the City must eventually accept the reality of the dole queue or a job in a call centre. A career with security, promotion and a pension is a remote prospect; to earn enough to start repaying their university fees and student loan will itself be an achievement. How long before our Tunisian or Egyptian moment?

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